AMERICAN UNIVERSITY
DEPARTMENT OF ECONOMICS
Janet Stotsky
ECON 541
Public Economics
Spring 2009
Office: Roper 117
Phone: 202 885-3750
Class: Mondays, 5:30-8:00 pm
E-mail: stotsky@american.edu
Office Hours: M, W 2:00-4:30 pm
or by appointment
RECOMMENDED TEXTBOOK (available at the bookstore)
Hindriks, Jean, and Gareth D. Myles, 2006, Intermediate Public Economics (Cambridge,
MA: MIT Press).
A classic graduate level text:
Atkinson, Anthony B., and Joseph E. Stiglitz, 1980, Lectures on Public Economics (New
York: McGraw-Hill).
Suggested undergraduate textbooks:
Rosen, Harvey S., any edition, Public Finance (New York: McGraw-Hill).
Stiglitz, Joseph E., any edition, Economics of the Public Sector (New York: Norton).
GRADING: Grades will be determined by a short research paper (20%), class
participation (10%), midterm examination (25%), and final examination (45%).
TEST DATES: Midterm:
Final:
March 2
May
READING LIST
I. OVERVIEW AND INTRODUCTION (week 1)
Hindriks and Myles, Chapters 1, 3
Tanzi, Vito, and Ludger Schuknecht, 1997, “Reconsidering the Fiscal Role of
Government: The International Perspective,” American Economic Review, 87, 2: 164168.
II. WELFARE ECONOMICS AND EFFICIENCY (week 1)
Hindriks and Myles, Chapter 2
III. PUBLIC GOODS AND EXTERNALITIES
A. Public Goods (week 2)
Hindriks and Myles, Chapter 5, sections 5.1-5.6
Additional readings
Samuelson, Paul A., 1954, “The Pure Theory of Public Expenditure,” Review of
Economics and Statistics, 36, 4: 387-389.
Samuelson, Paul A., 1955, “Diagrammatic Exposition of a Theory of Public
Expenditure,” Review of Economics and Statistics, 37, 4: 350-356.
B. Externalities (week 2)
Hindriks and Myles, Chapter 7
Cropper, Maureen L., and Wallace E. Oates, 1992, “Environmental Economics: A
Survey,” Journal of Economic Literature, 30, 2: 675-740.
Schmalensee, Richard, Paul L. Joskow, A. Denny Ellerman, Juan Pablo Montero, and
Elizabeth M. Bailey, 1998, “An Interim Evaluation of Sulfur Dioxide Emissions
Trading,” Journal of Economic Perspectives, 12, 3: 53-68.
Additional readings
Coase, R. H., 1960, “The Problem of Social Cost,” Journal of Law and Economics, 3: 144.
Vickrey, William S., 1963, “Pricing in Urban and Suburban Transport,” American
Economic Review, 53, 2: 452-465.
IV. PUBLIC CHOICE (week 3)
Hindriks and Myles, Chapter 10
Besley, Timothy, and Anne Case, 2003, “Political Institutions and Policy Choices:
Evidence from the United States,” Journal of Economic Literature, 41, 1: 7-73.
Husted, Thomas A., and Lawrence W. Kenny, 1997, “The Effect of the Expansion of the
Voting Franchise on the Size of Government,” Journal of Political Economy, 105, 1: 5482.
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Additional reading
Poterba, James M., 1994, “State Responses to Fiscal Crises: The Effects of Budgetary
Institutions and Politics,” Journal of Political Economy, 102, 4: 799-821.
V. SUBNATIONAL PUBLIC ECONOMICS (week 4)
Hindriks and Myles, Chapter 6, chapter 17, sections 17.1-17.3 and 17.6, and chapter 18,
section 18.4
Tiebout, Charles M., 1956, “A Pure Theory of Local Expenditures,” Journal of Political
Economy, 64, 5: 416-424.
Gramlich, Edward M., and Daniel L. Rubinfeld, 1982, “Micro Estimates of Public
Spending Demand Functions and Tests of the Tiebout and Median-Voter Hypotheses,”
Journal of Political Economy, 90, 3: 536-560.
Oates, Wallace E., 2008, “On the Evolution of Fiscal Federalism: Theory and
Institutions,” National Tax Journal, 61, 2: 313-334.
VI. PUBLIC SPENDING
A. Redistribution and Welfare Programs (week 5)
Hindriks and Myles, Chapters 12 and 13
Card, David, and Rebecca M. Blank, 2008, “The Changing Incidence and Severity of
Poverty Spells among Female-Headed Families,” American Economic Review, 98, 2:
387-391.
Blank, Rebecca M., 2002, “Evaluating Welfare Reform in the United States,” Journal of
Economic Literature, 40, 4: 1105-1166.
Additional reading
Moffitt, Robert A., 2002, “Welfare Programs and Labor Supply,” Chapter 34, in
Handbook of Public Economics, volume 4, edited by Alan J. Auerbach and Martin
Feldstein (Amsterdam: Elsevier): 2394-2430.
B. Social Security (week 6)
Hindriks and Myles, Chapter 20, section 20.1-20.4 and 20.9
Diamond, Peter A., and Peter R. Orszag, 2005, “Saving Social Security,” Journal of
Economic Perspectives, 19, 2: 11-32.
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Bosworth, Barry, and Gary Burtless, 2004, “Pension Reform and Saving,” National Tax
Journal, 57, 3: 703-727.
Additional reading
Feldstein, Martin, and Jeffrey B. Liebman, 2002, “Social Security,” Chapter 32, in
Handbook of Public Economics, volume 4, edited by Alan J. Auerbach and Martin
Feldstein (Amsterdam: Elsevier): 2246-2324.
VII. TAXATION
A. Incidence and Efficiency
1. Measurement of Tax Incidence (week 8)
Hindriks and Myles, Chapter 8, sections 8.5-8.6
Harberger, Arnold C., 1962, “The Incidence of the Corporation Income Tax,” Journal of
Political Economy, 70, 3: 215-240.
Piketty, Thomas, and Emmanuel Saez, 2007, “How Progressive is the U.S. Federal Tax
System? A Historical and International Perspective,” Journal of Economic Perspectives,
21, 1: 3-24.
Additional readings
Harberger, Arnold C., 2008, “The Incidence of the Corporation Income Tax Revisited,”
National Tax Journal, 61, 2: 303-312.
Fullerton, Don, and Gilbert E. Metcalf, 2002, “Tax Incidence,” Chapter 26, in Handbook
of Public Economics, volume 4, edited by Alan J. Auerbach and Martin Feldstein,
(Amsterdam: Elsevier): 1788-1872.
Shoven, John B., and John Whalley, 1984, “Applied General Equilibrium Models of
Taxation and International Trade: An Introduction and Survey,” Journal of Economic
Literature, 22, 3: 1007-51.
2. Measurement of Efficiency (week 9)
Hindriks and Myles, Chapter 14, section 14.2
Rosen, Harvey S., 1978, “The Measurement of Excess Burden with Explicit Utility
Functions, Journal of Political Economy, 86, 2, part 2: 5121-5135.
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Fullerton, Don, 1991, “Reconciling Recent Estimates of the Marginal Welfare Cost of
Taxation,” American Economic Review, 81, 1: 302-308.
Additional reading
Auerbach, Alan J., and James R. Hines, Jr., 2002, “Taxation and Economic Efficiency,”
Chapter 21, in Handbook of Public Economics, volume 3, edited by Alan J. Auerbach and
Martin Feldstein (Amsterdam: Elsevier): 1348-1360.
B. Optimal Taxation (week 9)
Hindriks and Myles, Chapters 14 and 15, sections 14.3-14.7, 15.5
Slemrod, Joel, 1990, “Optimal Taxation and Optimal Tax Systems,” Journal of Economic
Perspectives, 4, 1: 157-178.
Additional readings
Auerbach, Alan J., and James R. Hines, Jr., 2002, “Taxation and Economic Efficiency,”
Chapter 21, in Handbook of Public Economics, volume 3, edited by Alan J. Auerbach and
Martin Feldstein (Amsterdam: Elsevier): 1360-1383.
Diamond, Peter A., and James A. Mirrlees, 1971, “Optimal Taxation and Public
Production I: Production Efficiency,” American Economic Review, 61, 1: 8-27.
Diamond, Peter A., and James A. Mirrlees, 1971, “Optimal Taxation and Public
Production II: Tax Rules,” American Economic Review, 61, 3: 261-278.
B. The Effects of Taxation on Economic Behavior (weeks 10 and 11)
1. Saving, Capital Income, and Labor
Hindriks and Myles, Chapter 15, section 15.1-15.4
Bernheim, B. Douglas, 2002, “Taxation and Saving,” Chapter 18, in Handbook of Public
Economics, volume 3, edited by Alan J. Auerbach and Martin Feldstein (Amsterdam:
Elsevier): 1174-1249. See especially sections 3-5.
Gruber, Jonathan, 2006, “A Tax-Based Estimate of the Elasticity of Intertemporal
Substitution,” NBER Working Paper 11945 (Cambridge, MA: National Bureau of
Economic Research).
Poterba, James M., 2002, “Taxation, Risk-Taking, and Household Portfolio Behavior,”
Chapter 17, in Handbook of Public Economics, volume 3, edited by Alan J. Auerbach and
Martin Feldstein (Amsterdam: Elsevier): 1110-1171. See especially sections 1-2.
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Poterba, James M., and Andrew A. Samwick, 2003, “Taxation and Household Portfolio
Composition: U.S. Evidence from the 1980s and 1990s,” Journal of Public Economics,
87: 5-38.
Triest, Robert K., 1990, “The Effect of Income Taxation on Labor Supply in the United
States,” Journal of Human Resources, 25, 3: 491-516.
Additional readings
Banks, James, and Peter Diamond, 2008, “The Base for Direct Taxation,” preliminary
draft for the Report of a Commission on Reforming the Tax System for the 21st Century,
Chaired by Sir James Mirrlees (London: Institute for Fiscal Studies).
Meghir, Costas, and David Phillips, 2008, “Labour Supply and Taxes,” preliminary draft
for the Report of a Commission on Reforming the Tax System for the 21st Century,
Chaired by Sir James Mirrlees (London: Institute for Fiscal Studies).
Crawford, Ian, Michael Keen, and Stephen Smith, 2008, “Value-Added Tax and
Excises,” preliminary draft for the Report of a Commission on Reforming the Tax
System for the 21st Century, Chaired by Sir James Mirrlees (London: Institute for Fiscal
Studies).
2. Corporate Investment and Financial Policy
Hassett, Kevin A., and R. Glenn Hubbard, 2002, “Taxation Policy and Business
Investment,” Chapter 20, in Handbook of Public Economics, volume 3, edited by Alan J.
Auerbach and Martin Feldstein (Amsterdam: Elsevier): 1294-1343. See especially
sections 3-4.
Additional reading
Auerbach, Alan J., Michael P. Devereux, and Helen Simpson, 2008, “Taxing Corporate
Income,” preliminary draft for the Report of a Commission on Reforming the Tax System
for the 21st Century, Chaired by Sir James Mirrlees (London: Institute for Fiscal Studies).
VIII. TAX REFORM
A. Tax Reform (week 12)
Pechman, Joseph A., 1987, “Tax Reform: Theory and Practice,” Journal of Economic
Perspectives, 1, 1: 11-28.
Graetz, Michael J., 2007, “Tax Reform Unraveling,” Journal of Economic Perspectives,
21, 1: 69-90.
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Altig, David, Alan J. Auerbach, Laurence J. Kotlikoff, Kent A. Smetters, and Jan
Walliser, 2001, “Simulating Fundamental Tax Reform in the United States,” American
Economic Review, 91, 3: 574-595.
Owens, Jeffrey, 2006, “Fundamental Tax Reform: An International Perspective,”
National Tax Journal, 59, 1: 131-164.
B. Developing Countries (week 12)
Bahl, Roy W., and Richard M. Bird, 2008, “Tax Policy in Developing Countries:
Looking Back—and Forward,” National Tax Journal, 61, 2: 279-301.
IX. DEBT, DEFICITS, AND FISCAL SUSTAINABILITY (week 13)
Auerbach, Alan J., Jagadeesh Gokhale, and Laurence J. Kotlikoff, 1994, “Generational
Accounting: A Meaningful Way to Evaluate Fiscal Policy,” Journal of Economic
Perspectives, 8, 1: 73-94.
Barro, Robert J., 1974, “Are Government Bonds Net Wealth,” Journal of Political
Economy, 82, 6: 1095-1117.
Gale, William G., and Peter R. Orszag, 2003, “Economic Effects of Sustained Budget
Deficits,” National Tax Journal, 56, 3: 463-485.
International Monetary Fund, 2003, “Public Debt in Emerging Markets: Is It Too High?”
Chapter III in IMF World Economic Outlook (Washington, DC: International Monetary
Fund): 113-152.
Mendoza, Enrique, and Marcelo Oviedo, 2004, “Public Debt, Fiscal Solvency, and
Macroeconomic Uncertainty in Latin America: The Cases of Brazil, Colombia, Costa
Rica, and Mexico,” NBER Working Paper No. 6380 (Cambridge, MA: National Bureau
of Economic Research).
Additional reading
Elmendorf, Douglas W., and N. Gregory Mankiw, 1999, “Government Debt,” Chapter
25, in Handbook of Macroeconomics, volume 1, edited by John B. Taylor and Michael
Woodford (Amsterdam: Elsevier): 1616-1669.
X. REVIEW (week 14)
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