Economics 661

ADVANCED PUBLIC FINANCE

Spring 2006

TUESDAY, 7:00-9:40pm

Business 5167

Professor Laura Razzolini

Office: Business 5105

Email: lrazzolini@vcu.edu

Office Hours: Tuesday, 6:00-7:00pm & Thursday, 12:00-2:00pm

Course website: http://www.people.vcu.edu/~lrazzolini/PubE/ECO661

This course examines the role of government expenditure in the economy from both a theoretical and an empirical perspective. We will study the theory of externalities and public goods, which inform when government should intervene, as well as considering actual policy applications of these interventions. We will then explore two broad categories of government expenditure policies: social insurance and redistribution programs.

PREREQUISITES: This course is an applied microeconomic course. Intermediate Micro (301) and Econometrics (491 or 612) are prerequisites.

READINGS: The textbook for this course is Public Finance and Public Policy by Jonathan Gruber (Worth Publishers). Additional shorter readings will be assigned throughout the semester and posted on the course website.

COURSE REQUIREMENTS:

1. Readings and class participation (5 points). It is expected that all students will attend lectures, be up to date with their readings and be prepared to participate fully in class. Readings should be completed before the relevant class. You are responsible for all work missed during an absence and for all assigned readings (even if they are not discussed in class).

2. Practice Problem sets (20 points).  There will be six class assignments, each due every second week. No late assignments will be accepted without prior approval. In calculating your grade, I will drop your lowest assignment grade. Your answers must be presented in neat, legible form. While you may discuss problems with your colleagues, your written work must be your own. Homework will be due at the beginning of the class period the week after they are assigned unless otherwise noted. Solutions will be posted on the web, and discussed in class as a preparation for the exams.

3. Exams (20 Points Each). There will be three examinations. Each examination lasts two hours and will be given during class. The exams will be on the following dates:

          Examination 1. Tuesday, February 21.

          Examination 2. Tuesday, April 4.

          Final. Tuesday, May 2 at 7:00pm.

4. Paper (15 Points). This course will require you to write a short paper. For the paper you must choose a proposed or legislated government policy to write about. The paper must describe the policy and provide an economic analysis of it. This could include a description of how the policy may affect economic behavior, such as labor supply, savings, educational attainment, capital investment, or employment. You may also discuss the aspects to be considered when conducting cost-benefit analysis. The paper should be no longer than five pages, and will be due near the end of the term.

COURSE OUTLINE:

1. Introduction to Public Economics and the U.S. Public Sector Gruber, Chapter 1

2. Review of Microeconomic Underpinnings

          2.1 Constrained utility maximization, Gruber, Chapter 2, pp. 23-35

          2.2 Equilibrium and social welfare, Gruber, Chapter 2, pp. 41-52

3. Main issues in empirical public finance Gruber, Chapter 3

4. Externalities

          4.1 Theory of externalities, Gruber, Chapter 5, pp. 115-123

          4.2 Private-sector solutions to negative externalities, Gruber, Chapter 5, pp. 123-128

          4.3 Public-sector remedies for externalities, Gruber, Chapter 5, pp. 128-141

          4.4 Policy examples, Gruber, Chapter 6

5. Public Goods

          5.1 Optimal provision of public goods, Gruber, Chapter 7, pp.170-173

          5.2 Private provision of public goods, Gruber, Chapter 7, pp. 175-183; pp.190-191

          5.3 Public provision of public goods, Gruber, Chapter 7, pp. 183-187

6. Redistribution and Welfare policy

          6.1 Justifications for government intervention, Gruber, Chapter 2, pp. 50-52

          6.2 Poverty and inequality in the U.S., Gruber, Chapter 17, pp. 452-9

          6.3 Welfare Policy in the U.S., Gruber, Chapter 17, pp. 459-62

          6.4 Program Design Issues, Gruber, Chapter 2, pp. 35-41; Gruber, Chapter 17, pp.462-79

          6.5 Welfare Reform, Gruber, Chapter 17, pp. 479-82

7. Social Insurance

          7.1 Key programs and justifications for government intervention, Gruber, Chapter 12, pp. 301-03, 314-16

          7.2 Theory of insurance markets, Gruber, Chapter 12, pp. 303-14, 321-24

          7.3 Financing social insurance, Gruber, Chapter 20, pp. 572-77

          7.4 Social Security, Gruber, Chapter 13, pp. 336-52

          7.5 Disability insurance, Gruber, Chapter 14, pp. 365-66, 368-69, 378-79

          7.6 Workers’ compensation, Gruber, Chapter 14, pp. 369-71, 380-81, 385

          7.7 Unemployment insurance, Gruber, Chapter 14, pp. 366-68, 371-77, 381-87; Gruber, Chapter 12, pp. 316-320

8. Health Insurance, Gruber, Chapters 15 and 16

 RESEARCH PAPER

RESEARCH PAPER PROPOSAL DUE MARCH 28

RESEARCH PAPER DUE APRIL 252

Research Paper:

For the paper you must choose a proposed or legislated government policy to write about. The paper must describe the policy and provide an economic analysis of it. This could include a description of how the policy may affect economic behavior, such as labor supply, savings, educational attainment, capital investment, or employment. You may also discuss the aspects to be considered when conducting cost-benefit analysis. The paper should be no longer than five pages.

Finding a Topic:

There are several sources you could use to find a topic. One is simply to follow the policy debates in the newspapers and magazines. Second is to look at the policies discussed in the textbook for the course. A third way is to browse through recent issues of economic policy journals, or the web pages of research and policy institutions.

Some journals you could browse at the library are:

• National Tax Journal (http://proquest.umi.com/pqdlink?Ver=1&Exp=07-01-2003&REQ=3&Cert=0pCmV0SGvtwTaIR6dDenX3UiJSZwEnS%2fCxDNx5X4G6MqD5QwNI3hsRZNaWrtjYBN&Pub=28528)
• Journal of Economic Perspectives (http://www.jstor.org/journals/08953309.html)
• Journal of Public Economics (http://http:/www.elsevier.com/locate/issn/00472727)

Here are some links to some sites that might prove useful:

• The Economist (http://www.economist.com/)
• Brookings Institution, Washington, D.C. (http://www.brook.edu/ES/ES_HP.HTM)
  • Brookings Policy Briefs (http://www.brook.edu/comm/policybriefs/archive.htm)
  • Brooking Economics Studies (http://www.brook.edu/dybdocroot/es/es_hp.htm)
• Urban Institute
  • Research Page See reports and research on dozens of public economics topics 
• Urban-Brookings Tax Policy Center 
  • This combines some of Brookings and Urban Institute publications 
• National Bureau of Economic Research, Research Papers
  • Choose Public Economics or perhaps Aging, Children, Education, Health or Law and Econ
• Institute for Research on Poverty (IRP)
  • See Publications for Focus (their policy publication), Discussion Papers, or Special Reports

Other links that could prove useful in your research are listed at the end of the web page.

Sample Topic Ideas.

Here are some examples of topics. Feel free to choose from these or find your own:

• The arguments for taxing cigarettes or alcohol.
• How big is the problem of welfare dependence?
• Should the government provide day care?
• How will the President's plan for day care affect labor supply of parents? Wages of parents?
• What is the effect of the charitable deduction on charitable giving?
• How does the Earned Income Tax Credit affect labor supply? Or income? Or education?
• Does the "marriage tax" affect marital decisions?
• Do IRA savings incentive increase savings?
• How do balanced budget rules affect state's economies?
• Is the corporate income tax a good idea?
• Should the government subsidize higher education?
• Should the government mandate universal health insurance?
• and many more.

Writing a Proposal:

Everyone must submit a one-page Paper Topic Proposal. The proposal should contain the following:

1. Topic: Once sentence describing the topic or question that you will address in your paper.
2. Description: One paragraph describing in more detail what you will do in the paper, such as develop an economic model to analyze the question, or present evidence from published research to address a question.
3. Citation of Main Reference: List the complete reference (author, title, source, year) that you will be using as the basis of your research for the term paper.

Paper topic proposals are due March 28.

Final drafts are due in class on May 2. Paper must be no longer than 5 pages.

Outlines and Early Drafts are Welcome.

If you prepare your draft early and you would like preliminary comments from me, please arrange that with me a few days in advance and I will be happy to look at your paper. Note, I will only look at drafts of the completed paper, not sections or very rough drafts. Also, if you would like to discuss an outline for your paper before you begin writing, please type up your outline and make an appointment to see me.