Public Economic Theory Felix Bierbrauer MPI Collective Goods Summer Term 2008
Public Economic Theory Felix Bierbrauer MPI Collective Goods Summer Term 2008 Schedule: Thursday: 12.15 – 13.45, Room: Juridicum, Hörsaal N Friday: 12.15 -13.45, Room: Juridicum, Hörsaal N This course focuses on the state’s role in providing public goods and on the optimal use of taxes to finance the provision of public goods. We will mainly take a normative perspective, i.e., we ask the question what an ideal state could do in order to achieve allocative and distributive objectives. However, we will also contrast the results from this normative approach with the predictions of political economics and discuss recent developments in the literature. 1. Theory of Public Goods 1.1 An efficient provision of public goods: The Samuelson Rule 1.2 Voluntary provision of Public Goods: The free-rider problem 1.3 Lindahl’s approach 1.4. The modern theory: public good provision under asymmetric information 1.5. The political economy of public goods 2. Theory of optimal income taxation 2.1. The theory of optimal income taxation as a theory of redistribution with private information on productive abilities: The taxation principle 2.1.2 Interpersonal comparison of utilities 2.1.3 Characterization of an optimal income tax 2.1.4. Alternative normative approaches 2.1.5. Political economy of income taxation 2.1.6. Positive theories of the welfare state 3 Theory of optimal commodity taxation/ Ramsey taxation 3.1. The theory of optimal commodity taxation as a theory of public sector pricing 3.2. Renegotiation-proofness as a theoretical foundation of linear tax systems 3.2 Characterization of an optimal commodity tax system 3.3 Application: Theory of optimal capital taxation 4. The relation between optimal income taxation and optimal commodity taxation 4.1 The critique of Atkinson and Stiglitz 4.2 New Dynamic Public Finance 5. The theory of optimal taxation and the theory of public goods 5.1 The modified Samuelson rule 5.2 Optimal income taxation, optimal commodity taxation and public good provision 5.3 A political economy perspective on taxation and public good provision. 6. Taxation of profits 6.1. Competitive equilibrium with constant returns to scale 6.2 Increasing returns to scale 6.3 Tax competition between different countries 7. Externalities 7.1 Pigouvian taxes 7.2 Pigouvian taxes versus quantity controls 8. Public Finance in Models of Economic Growth 8.1. Public Debt and Ricardian Equivalence 8.2 Taxation, Public Good Provison and Economic Growth 8.3 The Pension System 9. The state as a provider of insurance 9.1. Sources of market failure on insurance markets 9.2. Government intervention on insurance markets References As main reference I recommend the textbook of Hindriks and Myles, Intermediate Public Economics, MIT Press, 2006. This book covers all topics at a level that is not too demanding from a mathematical point of view. Other useful references are: Salanie, The economics of taxation, MIT Press, 2003 Atkinson and Stiglitz, Lectures on Public Economics, Mc Graw-Hill, 1980 Myles, Public Economics, Cambridge University Press, 1995 For more specific topics: Bolton and Dewatripont, Contract Theory, MIT Press 2006 is useful for Chapters 1.4, 2 and 9 Mas-Collel, Whinston, Green, Microeconomic Theory, Harvard University Press 1996 is useful for Chapter 1.4 Barro and Sala-i-Martin, Economic Growth, MIT Press, 2004 is useful for Chapter 8 If textbook treatments are not available I will rely on original journal articles as a reference. These references will be given during the lectures. . Public Economic Theory Felix Bierbrauer MPI Collective Goods Summer Term 2008 Schedule: Thursday:. of political economics and discuss recent developments in the literature. 1. Theory of Public Goods 1.1 An efficient provision of public goods: The Samuelson