Department of Economics, SUFFOLK UNIVERSITY
Jonathan Haughton
Spring 2012
ECONOMICS 721 / 825: PUBLIC FINANCE
SYLLABUS AND READING LIST
Introduction
Welcome to Economics 721 / 825. This course is about the revenue side of government, and looks at the theory of
tax policy and tax structure. It examines the economic effects – on labor supply, saving, risk-taking, investment,
charitable giving, environmental protection, and growth – of different taxes (income, sales, value-added, wealth,
property, trade), and considers tax equity, efficiency, and incidence in the United States and in comparative
perspective. The course also provides an introduction to the use of computable general equilibrium tax models.
Prerequisite: A solid course in microeconomics.
Basics
Office:
Office hours:
Phone:
E-mail:
Web Page:
Rosalie Stahl building (73 Tremont St.), room 1014 (on tenth floor).
Wednesdays and Thursdays, 2:30-4:00 p.m., but please feel free to drop by anytime.
(617) 573 8127.
jonathan.haughton@suffolk.edu
http://web.cas.suffolk.edu/faculty/jhaughton/
Grading
The grade for the course will be based on:
a.
Final Exam. This will be on Wednesday, May 2, from 5:40-7:30 p.m. and be worth 35% of the total grade.
b.
Final Presentation. You will be expected to present the results of a project at the last class of the
semester (i.e. on Wednesday, April 25). Worth 15% of the total grade.
c.
Nine homework assignments. These will generally be due a week after they are handed out. Worth 25%
of the total grade.
d.
A take-home mid-term exam, which I will hand out on Wednesday, February 29, and expect back one
week later. Worth 15% of the total grade.
e.
An article review, presented in class. This will involve reading, summarizing, and critiquing an article from
the reading list, and presenting the key ideas in class. Worth 10% of the total grade.
Useful Dates
Wednesday, February 29 (!)
Wednesday, March 7
March 11-17
Wednesday, April 25
Wednesday, May 2
Ec 721 / 825: Public Finance
Mid-term exam handed out.
Mid-term exam due back.
Spring break; no class
Last day of class; presentations.
Final exam, 5:40-7:30 p.m.
Syllabus and Reading List, Spring 2012
Page 1 of 7
Reading List and Syllabus
The textbooks for this course are
Bernard Salanié, The Economics of Taxation, MIT Press, 2003,
which is a Ph.D.-level book, and
Harvey Rosen and Ted Gayer, Public Finance, 9th edition, McGraw-Hill, 2009.
These books will be supplemented by occasional topical handouts, and the articles listed below. I will comment
on the readings in class, and you should expect to read in detail at least one article or chapter per section.
I.
OVERVIEW: The role of government in an open economy; Public Goods.
Rosen & Gayer, chapters 4-6
R. Burgess and N. Stern, "Taxation and Development," Journal of Economic Literature XXXI, (June, 1993), 762-785.
Hal Varian, Microeconomic Analysis, 3rd edition. Chapters on Consumers’ Surplus (10) and Public Goods (23).
II.
ESSENTIALS OF TAX ANALYSIS: Partial equilibrium tax analysis; efficiency costs of taxation;
general equilibrium tax incidence.
Salanié, chapters 1 and 2.
Rosen and Gayer, chapters 14-15
Haughton, Jonathan. "Estimating Buoyancy, Elasticity and Stability," Methodological Note 1, April 1998.
Haughton, Jonathan., “Measuring the Compliance Costs of Excise Taxation,” Methodological Note 4, April 1998.
Haughton, Jonathan. Manual on Tax Analysis and Revenue Forecasting: Outline, for DANIDA/Mekong Economics,
Hanoi. August 2008. [34 pages, including explanation of accompanying tax calculator model.]
Haughton, Jonathan, “Taxation in Vietnam: Who Pays What?”, in G.P. Shukla, Duc Minh Pham, Michael
Engelschalk, and Tuan Minh Le (eds.), Increasing Transparency and Equity in Taxation: The Vietnam Model,
World Bank, Washington DC, June 2011. [pp. 180-205].
Younger, Stephen. 1993. Estimating tax incidence in Ghana: an exercise using household data, Cornell Food and
Nutrition Policy Program Working Paper 48, Ithaca NY.
A. Prest, "The Taxable Capacity of a Country," in J.F. Toye, (ed.), Taxation and Economic Development, Frank Cass,
London, 1979.
Goulder, L., and R. Williams. "The Substantial Bias from Ignoring General Equilibrium Effects in Estimating Excess
Burden, and a Practical Solution." Journal of Political Economy 111 (2003): 898-927.
Hausman, J. Exact Consumers Surplus and Deadweight Loss." American Economic Review 81 (1981): 622-676.
Hausman, J., and W. Newey. "Nonparametric Measurement of Exact Consumers Surplus and Deadweight
Loss." Econometrica 63 (1995): 1445-1476.
Fullerton, D., and G. Metcalf. "Tax Incidence." In Handbook of Public Economics. Vol. 4. Edited by A. Auerbach and
M. Feldstein. Amsterdam, The Netherlands: North Holland, 2002.
Shoven, J., and J. Whalley. 1984. “Applied General Equilibrium Models of Taxation and International Trade: An
Introduction and Survey,” Journal of Economic Literature, 22:1007-51.
III.
OPTIMAL COMMODITY TAXATION
Salanié, chapter 3.
Rosen and Gayer, chapter 16
Mankiw, N. Gregory, Matthew Weinzierl, and Danny Yagan. “Optimal Taxation in Theory and Practice,” Journal of
Economic Perspectives 23:4 (Fall 2009): 147-174.
Auerbach, A. "The Theory of Excess Burden and Optimal Taxation." In Handbook of Public Economics. Vol. 1.
Edited by A. Auerbach and M. Feldstein. Amsterdam, The Netherlands: North Holland, 1985, pp. 61-125.
Ec 721 / 825: Public Finance
Syllabus and Reading List, Spring 2012
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Chari, V. V., and P. J. Kehoe. "Optimal Fiscal and Monetary Policy." In Handbook of Macroeconomics. Vol. 1C.
Edited by J. Taylor and M. Woodford. Amsterdam, The Netherlands: Elsevier, 1999, chapter 26.
Deaton, A. "Econometric Issues in Tax Design for Developing Countries." In The Theory of Taxation in Developing
Countries. Edited by D. Newbery and N. Stern. Oxford, United Kingdom: Oxford University Press, 1987,
pp. 92-113. Diamond, P., and J. Mirrlees. "Optimal Taxation and Public Production I: Production
Efficiency," and "Optimal Taxation and Public Production II: Tax Rules." American Economic Review 61
(1971): 8-27 and 261-278.
Stern, N. "The Theory of Optimal Commodity and Income Taxation: An Introduction." In The Theory of Taxation in
Developing Countries. Edited by D. Newbery and N. Stern. Oxford, United Kingdom: Oxford University
Press, 1987, pp. 22-59.
Slemrod, J. "Optimal Taxation and Optimal Tax Systems." Journal of Economic Perspectives 4 (Winter 1990): 157178.
Value Added Tax
Ali Agha and Jonathan Haughton, “Designing VAT Systems: How Many Rates and At What Levels?," Review of
Economics and Statistics, May 1996.
Liam Ebrill et al. 2002. “The Allure of the Value-Added Tax,” Finance and Development, June.
Taxes on International Trade: Import Tariffs and Export Duties
Shome, Tax Policy Handbook, 199-217.
Feenstra, Robert and Alan Taylor. 2010. “Import Tariffs and Quotas under Perfect Competition,” Chapter 7 in
book on Brief Essentials of Trade. Worth Publishing.
Jonathan Haughton and Nguyen Nhu Binh, “Trade Liberalization and Foreign Direct Investment in Vietnam,”
ASEAN Economic Bulletin, December 2002.
B. Balassa, "Concepts and Measurements of Protection," in B. Balassa and Associates, The Structure of Protection
in Developing Countries, (Baltimore: Johns Hopkins Press, 1971), Ch. 1 (3-12; 21-25).
Hines, James. 2010. “Treasure Islands,” Journal of Economic Perspectives, 24(4): 103-126.
Lassana Cissokho, Jonathan Haughton, Kossi Makpayo, and Abdoulaye Seck. 2010. “Non-Tariff Barriers on
Agricultural Trade within ECOWAS: Extent, Effects, and Trade Implications,” February 2010. Under
revision for Journal of African Economies.
IV.
TAXATION OF LABOR INCOME
Salanié, chapters 4 and 5.
Rosen and Gayer, chapters 17 and 18.
Shome, Tax Policy Handbook, 117-133.
Mirrlees, J. "Exploration in the Theory of Optimal Income Taxation." Review of Economic Studies 38 (1971): 175208.
Diamond, Peter, and Emmanuel Saez. 2011. “The Case for a Progressive Tax: From Basic Research to Policy
Recommendations,” Journal of Economic Perspectives, 25(4): 165-190.
Saez, E. "Using Elasticities to Derive Optimal Income Tax Rates." Review of Economic Studies 68 (2001): 205-229.
Slemrod, J., S. Yitzhaki, J. Mayshar, and M. Lundholm. "Optimal Two Bracket Linear Income Taxation." Journal of
Public Economics 53 (1994): 269-290.
Alesina, A., E. Glaeser, and B. Sacerdote. "Work and Leisure in the U.S. and Europe: Why So Different?" In NBER
Macroeconomics Annual 2005. Edited by M. Gertler and K. Rogoff. Cambridge, MA: MIT Press, 2006, pp.
1-64..
Prescott, E. "Why Do Americans Work So Much More Than Europeans?" Federal Reserve Bank of Minneapolis
Review (July 2004): 2-13. Also available as NBER Working Paper No. 10316, February 2004.
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Syllabus and Reading List, Spring 2012
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Blundell, R., and T. MaCurdy. "Labor Supply: A Review of Alternative Approaches." In Handbook of Labor
Economics. Vol. 3. Edited by O. Ashenfelter and D. Card. Amsterdam, The Netherlands: Elsevier, 1999,
part 7, pp. 1569-1695.
Bosworth, B., and G. Burtless. "Effects of Tax Reform on Labor Supply, Investment, and Saving."Journal of
Economic Perspectives 6 (Winter 1992): 3-25.
Eklof, M., and H. Sacklen. "The Hausman-MaCurdy Controversy: Why Do the Results Differ Across
Studies?" Journal of Human Resources 35 (1999): 204-220.
Hausman, J. "Labor Supply." In How Taxes Affect Economic Behavior. Edited by H. Aaron and J. Pechman.
Washington, DC: Brookings Institution, 1981, pp. 27-83.
Kotlikoff, L., and D. Rapson. "Does it Pay, at the Margin, to Work and Save? Measuring Effective Tax Rates on
Americans' Labor Supply and Saving." In Tax Policy and the Economy. Vol. 21. Edited by J. Poterba.
Cambridge, MA: MIT Press, 2007, pp. 83-144.. Also available as NBER Working Paper No. 12533,
September 2006.
Moffitt, R., and M. Wilhelm. "Taxes and Labor Supply Decisions of the Affluent." In Does Atlas Shrug? The
Economic Consequences of Taxing the Rich. Edited by J. Slemrod. New York, NY: Russell Sage Foundation,
2000, pp. 193-234.
Saez, E. "Do Taxpayers Bunch at Kink Points?" Mimeograph, University of California-Berkeley Economics
Department, 2002. Also available as NBER Working Paper No. 7366, September 1999.
Eissa, N. "Taxation and Labor Supply of Married Women: The Tax Reform Act of 1986 as a Natural Experiment."
NBER Working Paper No. 5023, February 1995.
Triest, R. "The Effect of Income Taxation on Labor Supply in the United States." Journal of Human Resources 25
(Summer 1990): 491-516.
Auerbach, A., and J. Slemrod. "The Economic Effects of the Tax Reform Act of 1986." Journal of Economic
Literature 35 (June 1997): 589-632.
Gruber, J. and E. Saez. "The Elasticity of Taxable Income: Evidence and Implications."Journal of Public
Economics 84 (April 2002): 1-32.
Slemrod, J. "Methodological Issues in Measuring and Interpreting Taxable Income Elasticities." National Tax
Journal 51 (1998): 773-788.
U.S. Congressional Budget Office, Recent Literature on Taxable Income Elasticities, December 2004.
V.
TAXATION OF CAPITAL AND SAVING
Salanié, chapters 6 and 7.
Rosen and Gayer, chapter 19
A. Harberger, "The Incidence of Taxes on Income from Capital in an Open Economy: A Review of Current
Thinking," HIID Development Discussion Paper No. 139, August, 1982.
A. Harberger, "Tax Neutrality in Investment Incentives," in Aaron, H., and Boskin, M., eds., The Economics of
Taxation, The Brookings Institution, Studies of Government Finance, 1980.
Harberger, A. "The Incidence of the Corporation Income Tax." Journal of Political Economy 70 (1962): 215-240.
Gravelle, J., and K. Smetters. "Who Bears the Burden of Corporate Taxation in an Open Economy?" NBER
Working Paper No. 8280, May 2001.
Kotlikoff, L. "Intergenerational Transfers and Saving." Journal of Economic Perspectives 2 (Spring 1988): 41-58.
Atkeson, A., V. Chari, and P. Kehoe. "Taxing Capital Income: A Bad Idea." Federal Reserve Bank of Minneapolis
Quarterly Review 23, no. 3 (Summer 1999): 3-18.
Atkinson, A., and J. Stiglitz. Lectures in Public Economics, chapter 8.
Golosov, M., A. Tsyvinski, and I. Werning. "New Dynamic Public Finance: A User's Guide." In NBER
Macroeconomics Annual 2006. Edited by D. Acemoglu, K. Rogoff, and M. Woodford. Cambridge, MA: MIT
Press, 2007, pp. 317-363.
Feldstein, M. "The Welfare Cost of Capital Income Taxation." Journal of Political Economy 86 (April 1978): S29-S52.
Ec 721 / 825: Public Finance
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Stokey, N., and S. Rebelo. "Growth Effects of Flat-Rate Taxes." Journal of Political Economy 103 (1995): 519-550.
Boskin, M. "Taxation, Savings, and the Rate of Interest." Journal of Political Economy 86 (1978): S3-S27.
Hall, R. "Intertemporal Substitution in Consumption." Journal of Political Economy 96 (April 1988): 339-357.
Summers, L. "Capital Taxation and Accumulation in a Life Cycle Model." American Economic Review71 (September
1981): 533-544.
Tax Expenditures: Recent Experiences, Organization for Economic Co-operation and Development, June 1996, (pp.
9-17, 19-27, 29-35, 37-48).
VI.
WEALTH AND ASSET TAXATION
Rosen and Gayer, chapter 21 (second half).
R. Bird, "Wealth Taxation Around the World." Paper for the Conference on The Role of Wealth Taxes in Canada,
held at the University of Toronto. Sept. 13, 1990.
Bernheim, A., A. Shleifer, and L. Summers. "The Strategic Bequest Motive." Journal of Political Economy 93
(December 1985): 1045-1076.
Brown, J. "How Should We Insure Longevity Risk in Pensions and Social Security?" Center for Retirement
Research Issue in Brief, August 2000.
Friedman B., and M. Warshawsky. "The Cost of Annuities: Implications for Saving Behavior and
Bequests." Quarterly Journal of Economics 105 (1990): 135-154.
Kotlikoff, L., and A. Spivak. "The Family as an Incomplete Annuities Market." Journal of Political Economy 89
(1981): 372-291.
Benartzi, Shlomo, Alessandro Previtero, and Richard Thaler. 2011. “Annuitization Puzzles,” Journal of Economic
Perspectives, 25(4): 143-164.
Gale, William G., James R. Hines, Jr., and Joel Slemrod. Rethinking Estate and Gift Taxation. Washington, DC:
Brookings Institution Press.
Gokhale, J., L. J. Kotlikoff, J. Sefton, and M. Weale. "Simulating the Transmission of Wealth Inequality via
Bequests." Journal of Public Economics 79, no. 1 (January 2001): 93-128.
Poterba, J. "Tax Subsidies to Owner-Occupied Housing: An Asset Market Approach. “Quarterly Journal of
Economics 99 (1984): 729-752.
Tiebout, C. 1956. "A Pure Theory of Local Expenditures", Journal of Political Economy 64(5): 416–424
VII.
POLICY ISSUES: REVENUE ESTIMATION AND FORECASTING
Haughton, Jonathan. Manual on Tax Analysis and Revenue Forecasting: Outline, for DANIDA/Mekong Economics,
Hanoi. August 2008.
Jonathan Haughton. "Estimating Demand Curves for Goods Subject to Excise Taxes," Methodological Note 2,
April 1998.
Jonathan Haughton. "Calculating the Revenue-Maximizing Excise Tax," Methodological Note 3, April 1998.
Shome, Tax Policy Handbook, 254-257..
Chun-Yan Kuo and Glenn P. Jenkins, “A VAT Revenue Simulation Model for Tax Reform in Developing Countries”,
August 1999.
D. Dunn, "Forecasting Tax Revenue in Developing Countries", (pp. 1-52, A1-A12).
E. M. Sunley and R. D. Weiss, The Revenue Estimating Process, Tax Notes, June 10, 1991.
Bachman, Paul, Frank Conte, and David Tuerck. 2011. Massachusetts Tax Revenue Forecasts for FY 2012 and FY
2013, Beacon Hill Institute, Boston.
VIII.
POLICY ISSUES: LOW INCOME SUPPORT
Salanié, chapter 8.
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Browning, E. "Effects of the Earned Income Tax Credit on Income and Welfare." National Tax Journal48 (1995): 2343.
Dowd, Tim, and John Horowitz. 2011. “Income Mobility and the Earned Income Tax Credit: Short-Term Safety Net
or Long-Term Income Support,” Public Finance Review, 39: 619-652.
Eissa, N., and J. Liebman. "Labor Supply Response to the Earned Income Tax Credit."Quarterly Journal of
Economics 111 (May 1996): 605-637.
Meyer, B., and D. Rosenbaum. "Making Single Mothers Work: Recent Tax and Welfare Policy and Its
Effects." National Tax Journal 53 (December 2000, Part 2): 1027-1061.
IX.
POLICY ISSUES: TAX CONSUMPTION OR INCOME?
Salanié, chapter 9.
Rosen and Gayer, chapter 21.
Auerbach, A. "The Choice Between Income and Consumption Taxes: A Primer." NBER Working Paper No. 12307,
June 2006.
Jonathan Haughton and David Tuerck, The Texas State Tax Analysis Modeling Program (Texas-STAMP):
Methodology and Applications, Beacon Hill Institute, February 1999.
Jonathan Haughton, David Tuerck, Vadym Slobodyanyuk and Sorin Codreanu. Texas CGE-STAMP: A General
Equilibrium Tax Model, Beacon Hill Institute, Boston, March 2002.
Jonathan Haughton, Paul Bachman, Alfonso Sanchez-Penalver, Ngo Viet Phuong, and David G. Tuerck. “How Fair
is the FairTax?”. Beacon Hill Institute, February 2008.
David Tuerck, Keshab Bhattarai, Jonathan Haughton, Phuong Viet Ngo and Alfonso Sanchez-Penalver. The
Economic Effects of the FairTax: Results from the Beacon Hill Institute CGE Model. September 2006.
Altig, D., A. Auerbach, L. Kotlikoff, K. Smetters, and J. Walliser. 2001. "Simulating Fundamental Tax Reform in the
United States." American Economic Review 91: 574-595.
Hall, R., and A. Rabushka. The Flat Tax. 2nd ed. Stanford, CA: Hoover Institution Press, 1995.
McLure, C., and M. Bloomfield. The Value Added Tax: Key to Deficit Reduction? Washington, DC: American
Enterprise Institute for Public Policy Research, 1987.
Poterba, J. "Lifetime Incidence and the Distributional Burden of Excise Taxes." American Economic Review 79 (May
1989): 325-330.
X.
POLICY ISSUES: ENVIRONMENTAL TAXATION
Salanié, chapter 10
Jonathan Haughton and Alfonso Sanchez-Penalver. The High Cost of Over-Regulating CO2 Emissions. Beacon Hill
Institute, Suffolk University, Boston, March 2009.
A. Markandya, "Environmental Taxation: A Review of the Experience in Economies in Transition," International
Institute of Public Finance 50th Congress, Cambridge, MA, 1994.
Barthold, T. "Issues in the Design of Environmental Excise Taxes." Journal of Economic Perspectives (Winter 1994):
133-152.
Goulder, L. "Environmental Taxation and the Double Dividend: A Reader's Guide." International Tax and Public
Finance 2 (August 1995): 157-183.
XI.
POLICY ISSUES: NATURAL RESOURCE TAXATION
Jonathan Haughton and David Tuerck. “The Incidence of State-Level Taxes on Oil and Gas,” Public Finance
Review, 2006, 34(5): 527-550.
G. Jenkins, "Alternative Systems of Taxing Mineral Industries," in Bird and Oldman, Taxation in Developing
Countries, (Baltimore: Johns Hopkins University Press, 1975) (pp. 280-285).
M. Gillis, "Evolution of Natural Resource Taxes in Developing Countries," Natural Resources Journal, Vol. XXII, No.
3, 1982.
Shome, Tax Policy Handbook, 237-241.
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XII.
POLICY ISSUES: UNEMPLOYMENT INSURANCE
Acemoglu, D., and R. Shimer. "Efficient Unemployment Insurance." Mimeo, MIT (October 1997).
Baily, M. "Some Aspects of Optimal Unemployment Insurance." Journal of Public Economics10 (1978): 379-402.
Burdett, K., and R. Wright. "Unemployment Insurance and Short Time Compensation: The Effects of Layoffs,
Hours per Worker, and Wages." Journal of Political Economy 97 (1989): 1479-1496.
Cahuc, Pierre, and Etienne Lehmann. "Should Unemployment Benefits Decrease with the Unemployment
Spell?" Journal of Public Economics 77 (2000): 135-153.
Chiu, W., and E. Karni. "Endogenous Adverse Selection and Unemployment Insurance."Journal of Political
Economy 106 (1998): 806-827.
Feldstein, M., and D. Altman. "Unemployment Insurance Savings Accounts." NBER Working Paper No. w6860
(December 1998).
Orszag, Michael, J., and Dennis Snower. "From Unemployment Benefits to Unemployment Accounts."
(Unpublished, 2001.)
XIII.
POLICY ISSUES: TAX POLICY IN RECESSION
Rosen and Gayer, chapter 20 (“Deficit finance”)
Auerbach, Alan, William Gale, and Benjamin Harris. 2010. “Activist Fiscal Policy,” Journal of Economic Perspectives,
24(4): 141-164.
Haughton and Khandker on Thailand; to follow.
Alm, James, and Janet Rogers. 2011. “Do State Fiscal Policies Affect State Economic Growth?”, Public Finance
Review, 39: 483-526.
V. Tanzi, Public Finance in Developing Countries, (Edward Elgar Publishing Ltd., 1991), Ch. 8: “The Impact of
Macroeconomic Policies on the Level of Taxation (and on the Fiscal Balance) in Developing Countries,”
(pp. 116-137).
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