GRADUATE
PUBLIC FINANCE [ECON 5221]
SPRING 2015 [3 CREDITS]
Instructor:
Office:
Telephone:
e-mail:
Office Hrs:
Bulent Uyar
BUS 207
273-6343
uyar@uni.edu
TWH
11:00 - 12:00 Noon
& by appointment
Prerequisites: Econ 1041 (Macro) and Econ 1051 (Micro)
Web site:
www.business.uni.edu/uyar (There is a printable copy of the syllabus at that site. Make sure
you look at the one for you, the graduate students.)
emails:
I will email you on occasion. If you do not know what your UNI email address is or are having
problems with it, go to Room 36 in the Technology Building. It used to be the East Gym,
and is located right next to the Library.
Phones:
Please make sure they are turned off in class. No texting or emailing, etc., during class.
I. COURSE OBJECTIVES
Studying the role of government in the economy. Analyzing the reasons for, and the impact of taxation,
government spending, and borrowing.
II. REQUIRED TEXTS
Book:
Rosen, H.S.; T. Gayer. Public Finance. 10th Ed. Chicago: Irwin, 2014. (Also on Reserve.)
Course Packet: Uyar, Bulent. Public Finance: Course Packet (available in room 321 in this building).
III. RESERVE ITEMS AT THE LIBRARY: Please ask for them by their title at the Reserve desk.
Public Finance (10th ed.)
H.S. Rosen; T. Gayer
HJ 257.2 .R67 2010
Essential Microeconomics for Public Policy Analysis
J.M. Levy
HB172.L48 1995
Public Finance (10th ed.)
D. Hyman
HJ 141.H95 2010
*****Red Ink-----The Budget, The Deficit, and Debt of
the U.S. Government (I will provide you this
electronically but it is also available on reserve if you
want.)
G. R. Evans
HJ2051.E93 1997
Red Ink – Inside the High-Stakes Politics of the
Federal Budget
D. Wessel
HJ2051.W427 2012
State and Local Public Finance
R. C. Fisher
HJ275.F5593 2007
Microeconomics Preview edition (Chs. 2-5)
A. Goldsbee
My personal copy
***** This book was published in 1997. Therefore, the statistical data in it are old. Yet, it has succinct
explanations and discussions of some very important concepts and issues. Therefore, when you are reading
it, focus on the discussions and explanations; do not get bogged down in its statistics and tables.
IV. JOURNAL ARTICLES
The following are NOT on reserve. They are in professional journals. Some may be available on-line.
Please find them and make copies for when they will be assigned.
Kelman, Steve. "The Grace Commission: How Much Waste in Government?" The Public Interest, No. 78,
Winter 1985, pp.62-82.
Rivlin, Alice M. "Distinguished Lecture on Economics in Government: Strengthening the Economy by
Rethinking the Role of Federal and State Governments." Journal of Economic Perspectives, Vol.
2, Spring 1991, pp. 3-14.
V. SOME USEFUL WEB SITES:
The last time I checked, these were all active. If you need to look up data for any purpose, you should check
them out.
census.gov/statab
cbo.gov/
taxadmin.org/fta/rate/tax_stru.html
stateline.org/taxesandbudget
ssc.wisc.edu/irp
newfederalism.urban.org
acf.dhhs.gov/news/welfare
aspe.hhs.gov/health/MedicalExpenditures
cms.hhs.gov/MedicaidGenInfo
ssa.gov/OACT/STATS
whitehouse.gov/omb/budget/
truthandpolitics.org/comp-fed-outlays.php
census.gov/
ssa/gov/OACT/STATS
for the U.S. Statistical Abstract
for historical data on the federal budget surpluses and deficits.
for information on state taxes.
also for information on state taxes.
for information on measuring poverty.
impact of the welfare reform of 1996 and the states’ responses.
for information and data on welfare reform.
for information on medical expenditures
for info on Medicaid
for statistical information on social security
http://aspe.hhs.gov/health/Medical Expenditures
irs.gov
VI. PAPERS, ASSIGNMENTS, EXAMINATIONS AND GRADING
THERE WILL BE NO EXCEPTIONS TO THE POLICIES OUTLINED BELOW.
(A) Incompletes: There will be no exceptions to the University rules governing "Incomplete" grades.
(B) Deadlines: Please monitor the [Drop and W] deadlines very closely. Requests for permission to “leave”
a course after the deadlines will not be honored by the Head of the Economics Department.
(C) Cheating and Plagiarism: All forms of cheating and plagiarism will be dealt with in full compliance with
the University rules and regulations. Make sure you read those rules. They include expulsion from UNI, if
warranted.
(D) Assignments
There is no “extra work” in this course for “improving” your grade. Instead, you will have three assignments in
addition to the other course work as indicated below. Please note that late assignments will NOT be accepted
under any circumstances; they will receive a grade of zero. You will have a week or more for each one. So,
do them, do them well, and do them on time.
Assignment 1 Given on January 15. Due on January 22.
Assignment 2 Given on February 12. Due on March 10.
Assignment 3 Given on March 26.
Due on April 9.
(E) Exams
1. There will be two exams PLUS the final. All are required.
Exam I
during February 5 - 10 (Actual date will be announced a week in advance.)
Exam II
either during March 10-12 or 24-26 (either the week before or the week after the
Spring Break. Actual date will be announced a week in advance.)
Final exam
May 6, Wednesday (1:00-2:50 PM), as scheduled by the University.
2. You are entitled to MAKE-UP tests only if you fail to take the tests at their announced times during the
semester. As stated in the Schedule of Classes, all make-up tests (without exception) will be on April 25
(Saturday) in room 225, starting at 8:30 am. Failure to show-up for a make-up test when you are
supposed to, will earn you a grade of zero (0) for that test and an “F” for the course, irrespective of your
performance on the rest of the course-work. Make-up tests do not have to be the same as the regular ones.
3. Please note that failure to show up for the final exam at its scheduled time without a valid excuse (as
defined by the University) will entitle you to a grade of F for the course regardless of your overall performance
for the semester.
(F) PAPER: See the last two pages of the Syllabus.
(G) Grade distribution for graduate students:
Assignments (6+8+6)
20 points
Exam I
100 points
Exam II
100 points
Final Exam
110 points
*** PAPERS
50 points
TOTAL
380 points
The grading scale is approximately as follows: I reserve the right to deviate from this grading scale depending
on, for instance, the trend in exam grades, the quality of class participation, whether you fail to turn in an
assignment, etc.
93.0%---100.0%
A
89.0%--- 93.4%
A86.5%----88.9%
B+
83.5%----86.4%
B
79.0%----83.4%
B76.5%----78.9%
C+
73.5%----76.4%
C
69.0%----73.4%
C66.5%----68.9%
D+
63.5%----66.4%
D
59.0%----63.4%
D0.0%----58.9%
F
VII. COURSE STRUCTURE
A. Below is a suggested outline, and may be revised. Please note that I reserve the right to assign
additional readings as warranted. This includes Reserve readings as well.
B. Bring a CALCULATOR to every class.
C. I will not keep track of attendance. It is the students' responsibility to attend every class. However,
please remember that certain topics covered in class are not in the readings. By the same token, not every
topic included in the readings is covered in class.
D. I also encourage you to utilize the Academic Learning Center’s free assistance with
writing, math, science, college reading, and learning strategies. UNI’s Academic Learning Center, located
in 007/008 ITTC, also provides advising services and is the University's testing center for many
standardized
tests,
including
the
PLT,
GRE,
and
Praxis
Core. Visit
the
website
at http://www.uni.edu/unialc/ or call (319) 273-6023 for more information or to set up an appointment.
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REVIEW OF BASIC CONCEPTS: ON YOUR OWN
Knowledge of the following basic concepts is essential for all economics courses. It is your
responsibility to know them, to understand them. This course is based on your understanding of
these.
Demand/supply; equilibrium; consumer surplus/producer surplus.
Opportunity cost; production possibilities frontier; marginal rate of (technical) transformation
(MRT).
Elasticity ---what it is; how to compute it; what different elasticities are meant to measure;
---relationship between price elasticity of demand and total revenues of the firm.
Law of variable proportions (i.e. law of diminishing returns); returns to scale.
Utility; marginal utility (MU); diminishing MU; indifference curves.
Budget constraints; slope of an indifference curve [marginal rate of substitution (MRS)]. Utility
maximization; income and substitution effects.
Derivation of a person's demand curve for a good; derivation of the market demand curve.
Isoquant(s); isocost lines; slope of an isoquant [marginal rate of technical substitution (MRTS)].
Total cost [TC]; fixed cost; variable cost; marginal cost [MC]; average cost [AC]. Total revenue;
marginal revenue [MR]; average revenue [AR].
What portion of the MC curve is the supply curve of a firm? Why?
Why is the demand curve facing a perfectly competitive firm a horizontal line?
Profit maximization: why is it at the level of output where MC = MR?
Monopoly versus perfect competition
Interest rates and their determination. What is the FED? What is its role in the economy?
How does the FED control the supply of money? Can the federal government print money?
Any economics textbook would do for a review including these on Reserve. Please ask for them
by TITLE.
Our book
Rosen-Gayer. Public Finance. (9th ed.) Appendix (pp. 537-558)
Reserve
J.M. Levy. Essential Microeconomics for Public Policy Analysis. pp. 1-78.
Reserve
D. Hyman. Public Finance. (10th ed.) pp. 36-54.
Reserve
A. Goolsbee. Microeconomics: Preview Edition (Chapters 2-5)
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INTRODUCTION: GOVERNMENT AND RESOURCES
[TOPIC 1]
Why are we studying the role of governments in the economy? How do we know if the
government is “too big” or not? Scarcity, resource allocation, equity.
Market failure versus government failure. Positive Analysis. Normative Analysis:
Rosen-Gayer Ch. 1; Ch. 3 (pp. 46-49).
GRAD Also Hyman Ch. 1 (pp. 16-27).
MAJOR ACTIVITIES AND EXPENDITURES OF THE GOVERNMENT
[TOPIC 2]
Public Goods
Rosen-Gayer Ch. 4 (pp. 54-64).
Kelman. "The Grace Commission: How Much Waste in Government?" The Public Interest,
No. 78, Winter 1985, pp.62-82.
GRAD Also The Privatization Debate. Rosen Ch. 4 (pp. 64-68). Fisher Ch. 7 (pp. 158-67).
[TOPIC 3]
Externalities
Rosen-Gayer Ch. 5 (pp. 73-76, 76-78, 78-87, rest (emission fees, cap-and-trade) in class.
[TOPIC 4]
Education
Rosen-Gayer Ch. 7 (pp. 137-145)
Uyar. “State Support and Higher Education”. Economics Department Newsletter. Vol. 12
(Winter 2005). (Included in the course Packet.)
[TOPIC 5]
Key concepts: Moral hazard (pp. 186-7, 190-1, 225)
Adverse selection (pp. 182-5, 204, 224)
[TOPIC 6]
Welfare programs and Income Redistribution:
Rosen- Gayer Poverty Line (251-3, 267-8); TANF/AFDC (mostly lecture); SSI (282-3);
SNAP (287-8); Medicaid (212-3, 283-4); Affordable Care Act (215-6);
Unemployment Insurance (284-6); Earned Income Tax Credit (280-2).
GRAD Also
G.R. Evans. Red Ink . Ch.6 (106-16); Appendix G; Ch. 6 (116-23,127-30).
[TOPIC 7]
Social Insurance Programs : Social Security: history, objectives, structure, problems, and
proposed solutions to the problems. The four issues every privatization proposal has to
address in order to succeed.
Rosen-Gayer Ch. 11 (pp. 222-245)
GRAD Also
G.R.Evans. Red Ink.Ch. 7 (pp. 131-5); Ch. 1 (8-10);Ch. 7 (135-41,146-55).
[TOPIC 8]
Social Insurance Programs:
Rosen-Gayer Ch. 9 (193-198); Ch. 10 (pp. 206-212--- Medicare).
TRANSITION: EXPENDITURES versus REVENUES
[TOPIC 9]
Deficit Finance: Surpluses, Deficits, Debt, and Burden of Debt
Rosen-Gayer Ch. 20.
GRAD Also
G.R. Evans. Red Ink . Ch. 9 (187-210); Ch. 1 (14-5); Ch. 9 (210-3).
GRAD Also
Fisher (pp. 231-7, 275-9) for state governments’ budgetary practices.
GOVERNMENT REVENUES
[TOPIC 10]
Taxation and Incidence: Equity Implications— In the context of taxes in general but with
special emphasis on (excise and ad valorem) sales taxes.
Rosen-Gayer Ch. 14 (pp. 296-299, 301-308, 320-321)
GRAD Also
Levy Ch. 8
[TOPIC 11]
Taxation and Efficiency Implications : Excess Burden--- In the context of taxes in general
but
with special emphasis on (excise and ad valorem) sales taxes.
Rosen-Gayer Ch. 15 (pp. 324, 325-8, 332-4, 341-2)
[TOPIC 12]
Efficient AND Equitable Tax --- There is no such a tax.
Rosen-Gayer Ch.16(pp. 360-8, 348 (Ramsey Rule), 350-3, 369-70, ( if any time, 358-60).
[TOPIC 13]
Personal Income Tax:
Rosen-Gayer Ch. 17 Legal and Institutional Structure in the U.S.
Ch. 18 Impact on Economic Behavior.
[TOPIC 14]
Turnover Taxes, and Value-Added Taxes (VAT) as Types of Consumption Taxes.
Hyman Ch. 16 (pp. 664-670).
[TOPIC 15]
Devolution of Powers: State and Local Governments
Rivlin, Alice M. "Distinguished Lecture on Economics in Government: Strengthening the
Economy by Rethinking the Role of Federal and State Governments." Journal of
Economic Perspectives, Vol. 2, Spring 1991, pp. 3-14.
Rosen-Gayer Ch. 22
Public Finance [Econ 5221]
Spring 2015
Graduate Students: PAPER
Hints for the MPP students only.
The MPP Comprehensive Exam questions in Public Finance usually focus on certain timeless issues and
topics. They include but are not limited to:
- the debt, deficit, their impact on the economy.
- the “burden” of debt.
- the budgets, the budgetary and the accounting methods and procedures of the state-local governments on
one hand and of the federal government on the other.
- the significance of the federal government's budgetary and accounting methods and procedures in the
balanced budget amendment debate.
- Balanced Budget Amendment; its economic implications.
- federalism (that is, the relationship between the federal government and the state and local governments);
- welfare programs and welfare reform.
- entitlement programs; trust accounts; their financing; problems facing them and the country;
- local government finances.
- floating bonds to finance state-local projects as opposed to taxation.
- statutory versus economic incidence of taxes; the reasons for the difference between the two (i.e.,
elasticities and the burden of taxation).
- meaning of equity in taxation.
- meaning of efficiency in taxation.
- Is there one tax that is both efficient and equitable? No!
- federal income tax; items that are preferentially treated; the impact on the economy.
- etc, etc, etc.
General Instructions for the paper for all the “graduate” students
The purpose of the paper is to help you acquire a broader perspective on some of these issues than what is
provided in the rest of the course material.
Here is a list of instructions and information about the paper. Read them well because I will take off
as much as 10 points if you do not follow any of these instructions.
1. The paper is worth 50 points out of the 380 points available for the course.
2. The paper
a) should be a maximum of four (4) double-spaced pages, printed only on one side of the sheets; it
can be less than four pages but not more;
b) should have a minimum of 1-inch margins on all four sides;
c) should be in a font NOT smaller than [ Arial 11 ]
or
[Courier New 12 ],
and
d) should be written in your own words.
3. Unless I say otherwise, the paper is due on April the 14th. Use your time wisely because I will take 2 points
off for each day or portion of the day your paper is late; the “countdown” starts at 6:00 pm on April the 14th.
After five calendar days, I will not accept the paper at all, and you will receive a grade of zero (0) for it
PAPER:
Worth:
50 points
Due Date:
April the 14th.
Background information and readings: Your paper is actually a glorified take-home exam. It consists of a
number of questions. Since you have a lot of time to work on it, make sure to use your time well. The
following material should help you in answering the questions:
a) Your lecture notes.
b) All the relevant sections in the Rosen-Gayer book. Check not only its Table of Contents (TOC) but
even more importantly, its Index (usually located at the very end of every text book).
c) All the relevant sections in the Hyman. Check not only its Table of Contents (TOC) but even more
importantly, its Index (located in the very last pages of every text book).
d) D. Wessel, Red Ink (2012) --- Chapters 1, 2, 5.
e) G. Evans. Red Ink (1997) ---Appendix F; Ch. 1(6-16, 18); Ch. 9(200-9, 187-210); Ch. 1(14-15);
Ch. 9(210-213). Note that reading the sections and the pages out of the book by Evans in this order
will make the material in question clearer. Also, please remember that that book was published in
1997. Therefore, all the statistical information in it is “old”. Therefore, when you are reading it, focus
on the discussions and explanations. Do not get bogged down in statistics and tables.
Here is the “paper”.
Answer the following questions as numbered and in the same order as given. Some can be answered in
a few sentences and some in half-of-one page; there is no question that should take more than one
page, if that. You have a maximum of four pages; that is one of your “scarce” resources. So avoid
repetition. Do not waste your space and time by rewriting or rephrasing the questions themselves. Be
efficient; be succinct!
1. As you know, there is no Constitutional requirement for the federal government to balance its budget.
What would be the potential drawbacks of an Amendment requiring a balanced federal budget?
2. Define what we mean by “marketable” Treasury debt. Define what we mean by “nonmarketable”
Treasury debt.
3. Since the Treasury bonds that the Social Security Trust Fund holds are nonmarketable, why should
we be concerned about that portion of the federal debt?
4. When is a government said to have a deficit? What is the meaning of “deficit financing”?
5. What does “monetizing the federal deficit” mean? What is the main propose of monetizing the
deficit? What are the potential long-run problems of monetizing the deficit? .
6. “Crowding out” is one of the strongest arguments against sustained, large-scale borrowing by the
government to pay for its expenditures. Explain who or what is crowding out whom or what? Why?
How? Why is that an important issue for the economy and the future generations? What are the
factors that may mitigate the full impact of crowding out? .
7. As you know, in response to the current economic crisis, the federal government launched a
massive spending program (also called the “stimulus package”) in 2008-2009. Can we say that it has
caused crowding out? Explain why or why not?
Please note that I have no idea how long it will take me to grade the paper. In
addition, I keep the papers after you look at them. So make sure you have your
own hard copy for future reference.