ECONOMICS 738: PUBLIC ECONOMICS
Spring 2014
TTh 12:30pm – 1:45pm
Bryan 456
Professor Garth Heutel
Email: gaheutel@uncg.edu
Office: Bryan 446 (Ph: 336 334 4872)
Office Hours: TTh 11:00am-12:00pm
This is a graduate-level (Masters and PhD) course in public economics. We begin with a basic theoretical foundation for public economics, and spend the bulk of the course studying examples, primarily empirical. We will focus on environmental policy as a motivating example.
Course Materials
No textbook is required. However, lectures in the first few weeks of the course are based on chapters in
Microeconomic Theory by Mas-Colell, Whinston, and Green (MWG), Microeconomics by Goolsbee,
Levitt, and Syverson (GLS), and Microeconomic Theory: Basic Principles and Extensions by Nicholson and
Snyder (NS), 10 th edition. Those books are recommended. Much of the reading will be journal articles that are available via the university library. If anything is unavailable via the library, I will make it available on Blackboard (please let me know if there is something that you cannot find).
Assignments and Grades
Grades will be determined according to the following allocation of points:
• Midterm
• Research Paper (including presentations)
• In-class paper presentation
• Attendance and Participation
20% of course grade
40% of course grade
35% of course grade
5% of course grade
Midterm
There will be one in-class midterm examination on Tuesday, February 11 th . Update: Now February 13 It will cover the material from the theoretical section of the course. There is no final exam. The midterm is to be done independently, in class, without use of notes or textbooks.
Research Paper
A paper on the topic of your choosing is due on the final day of class ( April 24 ). This paper should include a review of the literature relevant to your chosen topic and the groundwork for an original research idea, including a preliminary empirical analysis. The topic should come from public economics, but that is broad. It could include health, environmental, labor, or something else. For the literature review, define the problem or question, summarize how other papers have addressed the question and how they have answered the question, identify any weaknesses in the literature, and identify gaps or areas of further study. Then, propose a research plan for an original project related to the literature. I

will expect a more thorough plan from PhD students than from Masters students. There is no page length requirement, but between 20-30 pages (12 point font, double spaced, 1-inch margins) is appropriate.
Plan on meeting with me individually on February 13 th Update: Now Feb 6 to discuss possible paper topics. Your topic must be approved by me no later than February 18 th Update: Now Feb 20 . In class on
February 18 th , each student will present a brief (5-10 minutes) outline of his or her paper topic.
Plan on meeting with me individually in March 6 th Update: Now March 4 to discuss the progress of your paper. Turn in a rough draft, which should contain the literature review and a plan for the empirical component, no later than March 25 th . Update: Now March 27 On March 25 th , each student will present a brief (15-30 minutes) report of the status of his or her paper.
Plan on meeting with me individually on April 8 th to discuss paper revisions. In class on April 22 nd and
April 24 th each student will present (30-45 minutes) his or her final paper. The final paper is due in class on April 24 th .
In-class Presentation
Each student will be assigned to lead the discussion for one class (75 minutes). This amounts to reading the paper assigned for that day, preparing a presentation of the paper, and leading a class discussion.
Slides are strongly recommended, and handouts are optional. Each student will choose a paper from the list of readings or of his or her own choosing, subject to the instructor's approval. Choose a presentation paper and have it approved by me no later than January 28 th . The schedule of presentation will depend on which papers are chosen to present (i.e. where it fits in the schedule of lectures).
Attendance and Participation
This grade will be based on being present and punctual for each class meeting and participating in class discussions.
Course Outline/Readings
Not all are required. Required readings for each class will be announced in advance. All of the readings from Section 1 (Theoretical Foundation) are required and are listed on the course schedule.
I.
Theoretical Foundation
• Externalities, MWG Chapter 11, NS Chapter 19, GLS Chapter 16
• Public Goods, MWG Chapter 11, NS Chapter 19, GLS Chapter 16
• General Equilibrium, MWG Chapter 15, NS Chapter 13 p. 441-466, GLS Chapter 14
• Welfare Analysis, MWG Chapter 16, MWG Chapter 22, NS Chapter 13 p. 466-481
II.
The Distribution of Costs of Environmental Policy
• Fullerton, Don, "Six Distributional Effects of Environmental Policy," Risk Analysis , 31(6),
June 2011, 923-929.

• Harberger, Arnold, "The Incidence of the Corporation Income Tax," Journal of Political
Economy , 70, 1962. 215-240.
• Fullerton, Don, Gilbert Metcalf, “Tax Incidence,” Handbook of Public Economics , Vol. 4,
A. Auerbach and M. Feldstein, eds., Amsterdam: Elsevier, 2002, 1787-872 (first 12 pages only)
• West, Sarah, and Roberton Williams, “Estimates from a Consumer Demand System:
Implications for the Incidence of Environmental Taxes,” Journal of Environmental
Economics and Management 47(3), 2004, 535-58
• Fullerton, Don, and Garth Heutel, “The General Equilibrium Incidence of Environmental
Taxes,” Journal of Public Economics 91(3-4), April 2007, 571-591.
• Fullerton, Don, and Garth Heutel, “The General Equilibrium Incidence of Environmental
Mandates,” American Economic Journal: Economic Policy , 2(3), August 2010, 64-89.
• Parry, Ian and Roberton Williams, "What are the Costs of Meeting Distributional
Objectives for Climate Policy?" B.E. Journal of Economic Analysis and Policy, Symposium
10(2), 2010.
• Metcalf, G. E., Mathur, A., & Hassett, K. A. (2011). Distributional Impacts in a
Comprehensive Climate Policy Package. In The Design and Implementation of US
Climate Policy (pp. 21-34). University of Chicago Press.
• Araar, Abdelkrim, Yazid Dissou and Jean-Yves Duclos, "Household Incidence of Pollution
Control Policies: A Robust Welfare Analysis using General Equilibrium Effects," Journal of
Environmental Economics and Management 61(2), March 2011, 227-243.
III.
The Distribution of Benefits of Environmental Policy
• Brooks, N., Sethi, R., “The Distribution of Pollution: Community Characteristics and
Exposure to Air Toxics,” Journal of Environmental Economics and Management 32 (2),
February 1997, 233-50
• Chay, Kenneth and Michael Greenstone, "Does Air Quality Matter? Evidence from the
Housing Market," Journal of Political Economy , 103(1), April 2005, 376-424.
• Smith, V. Kerry, Holger Sieg, Spencer Banzhaf, and Randall Walsh, “General Equilibrium
Benefits for Environmental Improvements: Projected Ozone Reductions under EPA’s
Prospective Analysis for the Los Angeles Air Basin,” Journal of Environmental Economics and Management 47(3), May 2004, 559-84
• Banzhaf, Spencer and Randall Walsh, "Do People Vote with their Feet? An Empirical Test of Tiebout's Mechanism," American Economic Review , 98(3), June 2008, 843-863.
• Evans, Mary, Christine Poulos and Kerry Smith, "Who Counts in Evaluating the Effects of
Air Pollution Policies on Households? Non-Market Valuation in the Presence of
Dependencies." Journal of Environmental Economics and Management¸ 62(1), July 2011,
65-79.
• Davis, Lucas. "The Effect of Power Plants on Local Housing Values and Rents." Review of
Economics and Statistics , 93(4), November 2011, 1391-1402.

• Banzhaf, Spencer and Omar Farooque. “Interjurisdictional Housing Prices and Spatial
Amenities: Which Measures of Housing Prices Reflect Local Public Goods?” NBER
Working Paper #17809, February 2012.
• Coate, Stephen. "Evaluating Durable Good Provision using Housing Prices." NBER
Working Paper #18767, February 2013.
IV.
Environmental Policy Design
• Weitzman, Martin, "Prices vs. Quantities," Review of Economic Studies , 41(4), October
1974, 477-491.
• Fell, Harrison, Ian MacKenzie and William Pizer, "Prices versus Quantities versus
Bankable Quantities," Resource and Energy Economics , 34(4), November 2012, 607-623.
• Pizer, William, "Combining Price and Quantity Controls to Mitigate Global Climate
Change, " Journal of Public Economics , 85(3), September 2002, 409-434.
• Carlson, Curtis, Dallas Burtraw, Maureen Cropper and Karen Palmer, "Sulfur Dioxide
Control by Electric Utilities: What are the Gains from Trade?" Journal of Political
Economy , 108(6), December 2000, 1292-1326.
• Aldy, Joseph, Alan Krupnick, Richard Newell, Ian Parry, and William Pizer, "Designing
Climate Mitigation Policy," Journal of Economic Literature , 48(4), December 2010, 903-
934.
• Muller, Nicholas and Robert Mendelsohn, "Efficient Pollution Regulation: Getting the
Prices Right," American Economic Review , 99(5), December 2009, 1714-1739.
• Stavins, Robert, "The Problem of the Commons: Still Unsettled after 100 Years,"
American Economic Review , 101(1), February 2011, 81-108.
• Anderson, Soren, and James Sallee, "Using Loopholes to Reveal the Marginal Cost of
Regulation: The Case of Fuel-Economy Standards," American Economic Review , 101(4),
June 2011, 1375-1409.
• Auffhammer, Maximiliam, and Ryan Kellogg, "Clearing the Air? The Effects of Gasoline
Content Regulation on Air Quality," American Economic Review , 101(6), October 2011,
2687-2722.
• Chan, Gabriel, Robert Stavins, Robert Stowe, Richard Sweeney, “The SO
2
Allowance
Trading System and the Clean Air Act Amendments of 1990: Reflections on Twenty Years of Policy Innovation,” National Tax Journal , 65(2), June 2012, 419-452.
• Fowlie, Meredith, Stephen Holland, and Erin Mansur, “What Do Emissions Markets
Deliver and to Whom? Evidence from Southern California’s NO
X
American Economic Review 102(2), April 2012, 965-993.
Trading Program.”
• Schmalensee, Richard and Robert Stavins, "The SO
2
Allowance Trading System: The
Ironic History of a Grand Policy Experiment," Journal of Economic Perspectives , 27(1),
Winter 2013, p. 103-122.
• Pezzey, John and Frank Jotzo, "Tax-versus-Trading and Efficient Revenue Recycling as
Issues for Greenhouse Gas Abatement," Journal of Environmental Economics and
Management , 64(2), September 2012, p. 230-236.

• Newell,Richard, William Pizer, and Daniel Raimi, "Carbon Markets: Past, Present, and
Future," NBER Working Paper #18504, November 2012.
• Goulder, Lawrence. "Markets for Pollution Allowances: What are the (New) Lessons?"
Journal of Economic Perspectives , 27(1), Winter 2013, p. 87-102.
• Ambec, Stefan, and Jessica Coria. "Prices vs. Quantities with Multiple Pollutants."
Journal of Environmental Economics and Management , 66(1), July 2013, p. 123-140.
• Goulder, Lawrence and Andrew Schein. "Carbon Taxes vs. Cap and Trade: A Critical
Review" NBER Working Paper #19338, August 2013.
V.
Private Provision of Public Goods
• J. Andreoni, “Charitable Giving” New Palgrave Dictionary of Economics, 2nd Edition,
2007 .
• J. Andreoni, 1990. “Impure Altruism and Donations to Public Goods: A Theory of Warm
Glow Giving,” Economic Journal 100, 464-477.
• B. Kingma, "An Accurate Measurement of the Crowd-Out Effect, Income Effect, and
Price Effect for Charitable Contributions," Journal of Political Economy , 97(5), October
1989, 1197-1207.
• T. Gaube, “When do Distortionary Taxes Reduce the Optimal Supply of Public Goods?”
Journal of Public Economics 76, 2000, 151-180.
• T. Bergstrom, L. Blume and H. Varian, “On the Private Provision of Public Goods,”
Journal of Public Economics 29, 1986, 25-49.
• J. Andreoni, “An Experimental Test of the Public Goods Crowding-Out Hypothesis ,”
American Economic Review 83 (5), 1317-27, 1993.
• J. Andreoni and A. Payne, “Do Government Grants to Private Charities Crowd Out Giving or Fundraising?” American Economic Review , 93(3), June 2003, 792-812.
• D. Hungerman “Are Church and State Substitutes? Evidence from the 1996 Welfare
Reform,” Journal of Public Economics 89 (2005), 2245-2267.
• Craig Landry, Andreas Lange, John List, Michael Price and Nicholas Rupp, "Is a Donor in
Hand Better than Two in the Bush? Evidence from a Natural Field Experiment,"
American Economic Review , 100(3), June 2010, 958-983.
• Ribar, David and Mark Wilhelm, "Altruistic and Joy-of-Giving Motivations in Charitable
Behavior," Journal of Political Economy , 110(2), April 2002, 425-457.
• Van't Veld, Klaas and Matthew Kotchen, "Green Clubs," Journal of Environmental
Economics and Management , 62(3), November 2011, 309-322.
• Deb, Rahul, Robert Gazzale, and Matthew Kotchen, “Testing Motives for Charitable
Giving: A Revealed-Preference Methodology with Experimental Evidence.” NBER
Working Paper 18029, May 2012.
VI.
Dynamics
• Golosov, Mikhail, Aleh Tsyvinski and Ivan Werning, "New Dynamic Public Finance: A
User's Guide," NBER Macroeconomics Annual 2006, Vol 21, 317-363.
• E. Farhi and I. Werning, “Inequality, Social Discounting and Estate Taxation” Journal of
Political Economy 115: 365-402, 2007.
• Jerome Adda and Russell Cooper, Dynamic Economics , The MIT Press: Cambridge MA.
Chapters 2 and 3.
• Ellen McGrattan, "The Macroeconomic Effects of Distortionary Taxation," Journal of
Monetary Economics , 33(3), June 1994, 573-601.

• Anton Braun, "Tax Disturbances and Real Economic Activity in the Postwar United
States," Journal of Monetary Economics , 33(3), June 1994, 441-462.
• Heutel, Garth, "Plant Vintages, Grandfathering, and Environmental Policy," Journal of
Environmental Economics and Management , 61(1), January 2011, 36-51.
• Farhi, Emmanuel and Ivan Werning, "Insurance and Taxation over the Life Cycle,"
Review of Economic Studies , forthcoming.
• Krueger, Dirk, and Alexander Ludwig, "Optimal Progressive Taxation and Education
Subsidies in a Model of Endogenous Human Capital Formation," working paper.
• Acemoglu, Daron, Mikhail Golosov, and Aleh Tsyvinski, "Dynamic Mirrlees Taxation under Political Economy Constraints," Review of Economic Studies , 77(3), 2010, 841-881.
VII.
Assorted Externalities
• Escarce, Jose, "Externalities in Hospitals and Physician Adoption of a New Surgical
Technology: An Exploratory Analysis," Journal of Health Economics , 15(6), December
1996, 715-734.
• Edlin and P. Karaca-Mandic, “The Accident Externality from Driving,” Journal of Political
Economy 114(5), 2006.
• E. Glaeser and E. Luttmer, “The Misallocation of Housing Under Rent Control,” American
Economic Review , 93(4), 1027-1046, September 2003.
• J. Gruber and B. Koszegi, 2001. “Is Addiction Rational? Theory and Evidence,” Quarterly
Journal of Economics , 116(4), 1261-1305.
• M. Kremer and E. Miguel “ Worms: Identifying Impacts on Education and Health in the
Presence of Treatment Externalities,” Econometrica 72(1): 159-217.
• E. Rossi-Hansberg, P. Sarte, R. Owens, “Housing Externalities,” Journal of Political
Economy , 118(3), June 2010, 485-535.
• O'Donoghue, Ted and Matthew Rabin, "Optimal Sin Taxes," Journal of Public Economics ,
90(10-11), November 2006, 1825-49.
• Rosen, Harvey, "Housing Subsidies: Effects on Housing Decisions, Efficiency, and Equity,"
Handbook of Public Economics, Vol. 1 (1985), 375-420.
• Bhattacharya, Jay and Neeraj Sood, "Who Pays for Obesity?" Journal of Economic
Perspectives , 25(1), Winter 2011, 139-158.
• Duranton, Gilles, and Matthew Turner, "The Fundamental Law of Road Congestion:
Evidence from US Cities," American Economic Review , 101(6), October 2011, 2616-2652.
Course Schedule Revised Jan 21 2014
The readings for each class will be announced a few days ahead of time. It will depend on the scheduling of the student presentations.
Tuesday
1/14
Lecture 1
Edgeworth Exchange Economies, MWG 15.B
1/21
Lecture 3
Fundamental Theorems, MWG 16.B-16.D
1/28
Thursday
1/16
Lecture 2
Production in GE models, MWG 15.C and 15.D
1/23
Lecture 4
Externalities, MWG 11.B, GLS 16.1-16.2
1/30

Lecture 5
Externalities, MWG 11.B, GLS 16.1-16.2
Presentation Paper Choice Due
2/4
Lecture 7
Public Goods, MWG 11.C, GLS 16.4
2/11
Lecture 9
Externalities and Public Goods, MWG 11.D and
11.E
2/18
Lecture 11
The Distribution of Costs of Environmental Policy
2/25
Lecture 13
The Distribution of Costs of Environmental Policy
3/4
Lecture 15
No class; meet with professor to discuss paper
3/11
Spring Break, no class
3/18
Lecture 17
Environmental Policy Design
3/25
Lecture 19
Private Provision of Public Goods
4/1
Lecture 21
Private Provision of Public Goods
4/8
Lecture 23
No class; meet with professor to discuss paper revisions
4/15
Lecture 25
Assorted Externalities
4/22
Lecture 27
Final presentations of paper
Lecture 6
No class; set up meeting for review (optional)
2/6
Lecture 8
No class; meet with professor to discuss paper topic
2/13
Lecture 10
Midterm
2/20
Lecture 12
The Distribution of Costs of Environmental Policy
Presentations of Paper Topics
Research Paper Topic Choice Due
2/27
Lecture 14
The Distribution of Benefits of Environmental
Policy
3/6
Lecture 16
The Distribution of Benefits of Environmental
Policy
3/13
Spring Break, no class
3/20
Lecture 18
No class; meet with professor (optional)
3/27
Lecture 20
Presentations of Paper Drafts
Paper Rough Draft Due
4/3
Lecture 22
Dynamics
4/10
Lecture 24
Dynamics
4/17
Lecture 26
Assorted Externalities
4/24
Lecture 28
Final presentations of paper
Paper Due