Economics 41
Public Economics
Spring 2010
Professor Bronchetti
ebronch1@swarthmore.edu
Office hours: Th 1:30-3:30 & by appt.
Kohlberg 206, x6140
This course surveys the field of Public Finance, which explores the rationales for and consequences
of government intervention in markets. The course begins with a review of welfare economics, the
conditions associated with an “unfettered” market achieving an efficient allocation of resources, and
situations in which a free market may fail to achieve efficiency. With this background, we study the
activities of the government in the market economy of the United States. We examine how decisions are
made about government interventions in markets, what kinds of expenditure activities the U.S.
government pursues, how those activities are financed through revenue collection, and the effects of both
expenditure and taxation programs on individual behavior and well-being. A primary goal is for students
to understand the economic principles that determine optimal government intervention in market
economies and to be prepared to apply those principles to current policy debates.
Texts:
Public Finance and Public Policy, 3rd edition, Jonathan Gruber (required).
Public Finance, 8th edition, Harvey S. Rosen and Ted Gayer (supplemental).
Other sources:
Interesting and relevant journal articles for this course can be found in the Journal of
Economic Perspectives, the Journal of Public Economics, and the National Tax
Journal. I will post many appropriate readings on our Blackboard site. Unpublished
working papers can be found at the National Bureau of Economic Research
(www.nber.org) or through policy think-tanks like the Urban Institute
(www.urban.org), the Brookings Institution (www.brookings.org), American
Enterprise Institute (www.aei.org), the Center on Budget and Policy Priorities
(www.cbpp.org), the Economic Policy Institute (www.epi.org), and others.
Other textbooks that can be found in McCabe’s Honors reserves section include:
Handbook of Public Economics (4 volumes), Joseph Stiglitz’s Economics of the
Public Sector, and Dennis Mueller’s Public Choice III.
Grading:
Midterm exam, 25 percent.
Final exam, 30 percent.
Problem sets, 10 percent.
Policy paper, 15 percent.
Group grade for leading discussion, 10 percent.
Debate/discussion and general class participation, 10 percent.
Exams:
The midterm exam will take place either March 2nd or 4th during class.
The final will be semi-cumulative. Date/time TBA when exam schedule is released.
Homework:
Short problem sets will be assigned every couple of weeks. You may miss 1 over the
course of the semester with no penalty, or you may drop your lowest score if you
complete them all. I strongly encourage you to work on these with study partners or
in groups; however, every student should write up and submit the answers. Problem
sets will be posted under “Course Documents” on Blackboard.
Discussions:
There will be several planned discussions/debates throughout the semester, and a
large percentage of your class participation grade will be based on your preparedness
and contribution in these discussions. For each of these, there will be a packet of
additional reading material (posted on Blackboard), which you will use to prepare for
the discussion.
Although all students are expected to complete the readings and to contribute to
discussions, a team of 5 or so students will be responsible for leading each of the
discussions. The team leading the discussion will clearly need to devote more time to
reading the materials, determining the major points that should come out of the
discussion, and preparing questions to lead classmates through a productive
discussion or debate of the topic.
I will be available to consult with teams about how to prepare and lead a discussion.
We will choose discussion topics and groups within the next week.
Paper:
The purpose of the writing assignment is to use what you've learned to evaluate a
policy or reform of current importance. You will write a 6-8 page paper (excluding
any references, graphs, or tables), which should be double-spaced in a font no
smaller than 11-point. The most important tasks in writing the paper are to 1) briefly
describe the program/policy, its intended effects, target population, etc., 2) relate it to
the material and/or economic theory we've discussed in class, describing, where
possible, the economic justification for this government intervention, 3) discuss and
explain related policy debates, and 4) come to a conclusion concerning the value of
the program in terms of its effects or the direction that policy makers should take in
the future. Failure to take a stance and advocate an opinion (with respect to part 4)
will result in a reduced grade, as will failure to support your opinion with economic
reasoning. The last page of the syllabus provides some possible paper topics;
however, you are free to choose another topic that interests you. Relevant deadlines
for topic choice, preliminary bibliographies, and final papers are listed on the
schedule. I will give you more detailed information on the paper shortly, but you
should begin thinking about topics and looking for sources as soon as possible.
Policies:
Late assignments – If you turn in a term paper late, the grade will be reduced 1/3 of
a letter grade for each day past the due date. Papers that are more than 5 days late
will not be accepted at all. Problem sets are due at the specified deadline and will not
be accepted late. You may, however, forfeit one problem set with no penalty.
Grade Concerns/Appeals – If you feel that an assignment has been graded
incorrectly, please submit a written explanation of the problem (along with the
assignment) within one week. The written explanation may be very brief but should
be clear enough for me to understand your concern about your grade. Alternatively,
you may come to discuss the assignment and grade during my office hours.
Missed exam – Regardless of the reason for missing an exam, no make-up will be
given unless arrangements are made with me prior to the scheduled time of the exam
and you provide documented evidence of a circumstance that merits rescheduling
(e.g. a university-sponsored event or an illness certified by the Dean’s office or
Worth). Final exams can be rescheduled only in accordance with the policies of the
College (e.g., if you have three or more finals within a 24-hour period), but you must
let me know as soon as possible if you will need to take the final at an alternate time.
Travel plans are not sufficient reason for rescheduling of the final.
Academic dishonesty – Plagiarism and other forms of academic dishonesty will be
punished in accordance with the college’s policies and can involve penalties ranging
from failing the course to expulsion from the college. Please see me if you have
questions on how to avoid plagiarism in your writing assignments.
ROUGH SCHEDULE
Dates
Topics
Reading
Problem Set
1
Jan. 19, 21
Introduction
Theoretical Tools of Public Finance
Gruber 1
Gruber 2
Rosen 3
Problem Set #1 up on
Blackboard
2
Jan. 26, 28
Theoretical Tools of Public Finance, cont.
Empirical Tools of Public Finance
Budget Analysis
Week
Gruber 3
Gruber 4
3
Feb. 2, 4
Externalities
DISCUSSION #1
Gruber 5, 6
4
Feb. 9, 11
Public Goods
Cost-Benefit Analysis
DISCUSSION #2
(Paper topics due Feb. 11 by 5 p.m.)
Gruber 7
Gruber 8
5
Feb. 16, 18
Political Economy
DISCUSSION #3
Gruber 9
Rosen 6
6
Feb. 23, 25
Fiscal Federalism and Education
(Bibliographies due Feb. 25 by 5 p.m.)
DISCUSSION #4
Gruber 10
Gruber 11
7
Mar. 2, 4
MIDTERM EXAM
Mar. 9, 11
SPRING BREAK
8
Mar. 16, 18
Social Insurance
UI, SSDI, and WC
Gruber 12
Gruber 14
9
Mar. 23, 25
Social Security
DISCUSSION #5
Gruber 13
10
Mar. 30, Apr. 1
Health Insurance, Medicaid and Medicare
DISCUSSION #6
Gruber 15
Gruber 16
11
Apr. 6, 8
Income Redistribution, Poverty and Welfare
DISCUSSION #7
Gruber 17
Rosen 13
12
Apr. 13, 15
Tax Incidence and Efficiency
DISCUSSION #8
13
Apr. 20, 22
Taxes on Labor Supply and Savings
Taxes on Risk-taking and Wealth
DISCUSSION #9
Gruber 18
Gruber 19
Gruber 20
Gruber 21, 22
Gruber 23
14
Apr. 27, 29
Tax Reform
Wrap up, catch up and/or review
(Papers due Monday, May 3, by 5:00 p.m.)
Gruber 25
Problem Set #2 up on
Blackboard
Problem Set #3 up on
Blackboard
Problem Set #4 up on
Blackboard
Problem Set #5 up on
Blackboard
Problem Set #6 up on
Blackboard
SOME POSSIBLE PAPER TOPICS
1. Carbon taxes and cap-and-trade proposals
2. Fuel economy (CAFÉ) standards for automobiles
3. Government subsidies to professional sports franchises or for stadiums
4. Government response to natural disasters (i.e., How ought the government respond?)
5. Head Start and its effects
6. School expenditures, class size, and student performance
7. Accountability-based education reform and/or No Child Left Behind
8. Unemployment Insurance (UI) reform
9. Social Security Old Age Benefits, solvency and possible reforms
10. State Children’s Health Insurance Program (SCHIP)
11. U.S. healthcare and health insurance in comparative perspective
12. Universal health insurance in the U.S.
13. Welfare Reform of 1996 (PRWORA), its goals and effects
14. The Earned Income Tax Credit (EITC) and its effects
15. The Bush tax cuts, their effects and the current debate
16. “Fair Tax” – national sales tax or consumption taxes in general