University of Nevada, Reno
Department of Economics
ECON 451/651 – Public Finance
(Tuesday & Thursday 1:00 – 2:15, AB 109)
Spring 2011
Mehmet S. Tosun
Office: AB319F
Phone: 775-784-6678
Email: tosun@unr.edu
Homepage: http://www.business.unr.edu/faculty/tosun/
Office Hours: W 1:30 – 2:30 pm
or by appointment.
Course Objectives: The objective of this course is to introduce students to public
finance and provide them with the tools to examine the role of government in the
economy. Throughout the course, we will address four questions of public
finance: When should the government intervene in the economy? How might the
government intervene? What is the effect of those interventions on economic
outcomes? Why do governments choose to intervene in the way that they do?
Specific objectives are:
1. Examine the rationale behind government expenditure programs.
2. Provide the student with the methodology used in the evaluation of government
activities.
3. Analyze the efficiency and equity aspects of major taxation forms and tax reform.
4. Inform the student about the structure and character of public finance in the U.S.
and elsewhere.
5. Acquaint students with some of the empirical research related to taxation and
government expenditure.
Course Outcomes: This course is designed to help you evaluate public policy issues
involved in taxation and spending functions of government. This course will be a good
preparation for students considering careers or further study in economics, law, business,
public administration, land-use planning, political science, and international relations.
Required Textbook:
Gruber, Jonathan. 2010. Public Finance and Public Policy, Third Edition. New
York, NY: Worth Publishers. Students are encouraged to make use of the book
web site at http://bcs.worthpublishers.com/gruber/
Other Recommended Books:
Brunori, David. 2006. State Tax Policy: A Political Perspective. Washington,
D.C.: The Urban Institute Press. http://www.urban.org/books/state_tax_policy/
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Slemrod, Joel and Jon Bakija. 2008. Taxing Ourselves: A Citizen’s Guide to the
Debate over Taxes, Fourth Edition. Cambridge, MA: The MIT Press.
http://mitpress.mit.edu/catalog/item/default.asp?ttype=2&tid=11424
Reading Assignments: These will be provided to students on the class web site
(WebCT) or as handouts during class.
Background and Reference Texts:
Browning, E.K. and J.M Browning. 1994. Public Finance and the Price System,
Fourth Edition, Upper Saddle River, New Jersey: Prentice Hall.
Bruce, N. 2001. Public Finance and the American Economy, Second Edition.
New York, NY: Addison, Wesley.
Burg, David F. 2003. A World History of Tax Rebellions: An Encyclopedia of Tax
Rebels, Revolts, and Riots from Antiquity to the Present, New York: Routledge.
Cordes, J.J., R.D. Ebel and J.G. Gravelle. 2006. The Encyclopedia of Taxation
and Tax Policy, Second Edition. Washington, D.C.: The Urban Institute Press.
Fisher, Ronald. 2006. State and Local Public Finance (3rd Edition). Southwestern.
Hyman, D. N. 2008. Public Finance: A Contemporary Application of Theory to
Policy (9th Edition). Fort Worth, TX: Dryden Press.
Kaul, Inge and Pedro Conceicao. 2006. The New Public Finance: Responding to
Global Challenges. New York: Oxford University Press, U.S.A.
Mikesell, John. 2010. Fiscal Administration: Analysis and Applications for the
Public Sector (8th Edition). Wadsworth Publishing.
Musgrave, Richard A. 1959. The Theory of Public Finance: A Study in Public
Economy, New York: McGraw-Hill.
Rosen, Harvey S. and Ted Gayer. 2010. Public Finance (9th Edition). Boston:
Irwin McGraw-Hill.
Stiglitz, J.E. 2000. Economics of the Public Sector, Third Edition, New York,
NY: W.W. Norton & Company.
Steuerle, Eugene. 2004. Contemporary U.S. Tax Policy, Washington, D.C.: The
Urban Institute Press.
Tanzi, Vito and Howell Zee. 2001. Tax Policy for Developing Countries,
Washington, D.C.: International Monetary Fund.
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Grading: The course grade is based on three homework exercises (or case studies) (5%
each), a policy essay (20%), a midterm exam (30%), and a final exam (35%).
Final exam is scheduled to take place on Thursday, May 5, 2011, Noon -2:00 pm.
Attendance to all class sessions is mandatory. Students registered in ECON 651
will be required to answer one or more alternative or extra questions in the
homework exercises and the exams. They are also expected to use data for at least
basic statistical analysis in their policy essay.
Your final grade will be calculated according to the following scale:
90-100%=A, 80-89=B, 70-79%=C, 60-69%=D, 59% or less=F
Late Assignments and Missed Exams: Students are expected to complete the
assignments by the announced due dates. Failure to do so will result in zero credit
for that assignment. There will be no make-up exams without prior approval
except under extremely unusual circumstances.
Short Policy Essay: The objective here is to provide students with some research
experience. The writing of such an essay normally includes the following four
steps:
Brainstorming: Come up with three policy ideas that interest you the most.
You can discuss these with me during my office hours. You will then
choose one of these ideas as a research project for this semester.
Proposal: Write a one-page proposal explaining your policy question. You should
explain why you chose that specific question and why it is of policy
interest.
Outline: Combine your proposal from the previous stage with a detailed outline
that includes a preliminary list of references.
Paper Draft: Submit your completed essay.
Class Courtesy: Late arrival should be an exception. When necessary sit on entering
side; do not disturb class. Early departure should be an exception – only in an emergency
or with prior consultation. Early preparation for departure – please don’t. Talking – with
everyone or with no one.
Disability Statement: If you have a disability and will be requiring assistance, please
contact me or the Disability Resource Center (Thompson Building Suite 101) as soon as
possible to arrange for appropriate accommodations.
Academic Integrity: Honesty and personal integrity are key facets of the University of
Nevada community. The issue of academic integrity is taken very seriously at the
University and College of Business Administration. Since the majority of students take
pride in total academic integrity, it is hoped that you, as a student, will take action to
influence the practice of integrity in academic community. I understand that students feel
pressure to perform well in their classes, and I will do everything that I can to ensure that
you have the resources necessary to succeed. However, cheating on exams and course
assignments will not be tolerated, and students who fail to comply with the University’s
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honor code (www.unr.edu/stsv/acdispol.html, www.unr.edu/stsv/nsop/dishones.htm) will
be subject to the maximum university penalties. Please visit the university website if you
are unfamiliar with the actions which constitute academic dishonesty.
Course Outline:
1. Introduction
Week 1 – Week 2 (January 18 – 27)
Definitions
Why Study Public Finance? Chapter 1
Theoretical Tools of Public Finance: Chapter 2
Budget Analysis and Deficit Financing: Chapter 4
2. Externalities and Public Goods
Week 3 – Week 6 (February 1 – 22)
Externalities: Chapters 5, 6
Public Goods: Chapters 7, 9
Local Public Goods: Chapters 10,11
3. Social Insurance and Redistribution
Week 6 – Week 8 (February 24 – March 8)
Social Insurance Principles: Chapter 12
Social Insurance Programs: Social Security and Health Insurance, Chapters 13, 15 and 16
Midterm Exam (Thursday, March 10)
Week 9, Spring Break (March 12 – 20) – No Classes
4. Taxation
Week 10 – Week 15 (March 22 – May 3)
Introduction: Chapter 18
Equity and Efficiency Implications: Chapters 19,20
Behavioral Effects of Income Taxation: Chapters 21,22
Corporate Taxation: Chapter 24
Fundamental Tax and Budget Reform: Chapter 25
Final Exam (Thursday, May 5, 2011, Noon - 2:00 pm)
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Additional Readings:
1. Introduction
Buchanan, James M. and Richard A. Musgrave. 1999. Public Finance and Public
Choice: Two Contrasting Visions of the State, Cambridge, MA: MIT Press. Chapter 12.1.
Kaul, Inge and Pedro Conceicao. 2006. “Overview” in The New Public Finance:
Responding to Global Challenges. New York: Oxford University Press, U.S.A.
You can find more material at http://www.thenewpublicfinance.org/
Musgrave, Richard A. and Peggy B. Musgrave. 1980. Public Finance in Theory and
Practice, New York: McGraw-Hill. Chapter 1.
Poterba, James M. 1998. “Public Finance and Public Choice,” National Tax Journal, 51
(2): 391-396. http://ntj.tax.org
2. Externalities and Public Goods
Externalities
Coase, R. 1960. “The Problem of Social Cost,” Journal of Law and Economics, pp.1-44.
Farrell, Joseph. 1987. “Information and the Coase Theorem,” Journal of Economic
Perspectives, 1 (2): 113-129. http://www.jstor.org
Fullerton, D. and A. Wolverton. 1999. “The Case for a Two-part Instrument:
Presumptive Tax and Performance Subsidy” in Environmental and Public Economics:
Essays in Honor of Wallace E. Oates, A. Panagaria, P. Portney and R. Schwab, eds.,
Cheltenham, UK: Edward Elgar: 32-57. Available as NBER paper 5993.
Hardin, Garren. 1968. “The Tragedy of the Commons,” Science, December.
Wiggins, S. and G. Libecap. 1985. “Oil Field Unitization: Contractual Failure in the
Presence of Imperfect Information,” American Economic Review, 75 (3): 368-385.
http://www.jstor.org
Public Goods
Oakland, W. 1987. “Theory of Public Goods.” Chapter 9, Handbook of Public
Economics, Vol. 2, pp. 485-535.
Samuelson, P.A. 1955. “Diagrammatic Exposition of a Theory of Public Expenditure,”
Review of Economics and Statistics, 37 (4): 350-356. http://www.jstor.org
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3. Social Insurance and Redistribution
Social Security
Congressional Budget Office. 2001. “Social Security: A Primer,” September.
Washington, D.C.
Feldstein, M. 1974. “Social Security, Induced Retirement and Aggregate Capital
Accumulation,” Journal of Political Economy, 82 (5): 905-926. http://www.jstor.org
Feldstein, M. 1996. “Social Security and Saving: New Time Series Evidence,” National
Tax Journal, 49 (2): 151-164.
International Monetary Fund. 2004. World Economic Outlook, September. The analytic
chapter on global aging (Chapter 3) can be downloaded from the IMF web site
www.imf.org.
Munnell, Alicia H. 1999. “Reforming Social Security: The Case Against Individual
Accounts,” National Tax Journal, 52 (4): 803-818.
Tosun, Mehmet S. 2005. “Global Aging and Fiscal Policy with International Labor
Mobility: A Political Economy Perspective,” IMF Working Paper WP/05/140.
Washington D.C.: IMF.
4. Taxation
Check the Tax Analysts’ web site:
http://www.taxanalysts.com/www/freefiles.nsf/Files/Yablon.pdf/$file/Yablon.pdf for a
recent collection of tax quotes.
Excess Burden
Hines, Jr., J.R. 1999. “Three Sides of Harberger Triangles,” Journal of Economic
Perspectives, 13 (2): 167-188.
Optimal Taxation
Slemrod, J. 1990. “Optimal Taxation and Optimal Tax Systems,” Journal of
Economic Perspectives, 4 (1): 157-178. http://www.jstor.org
Smith, P. 1991. “Lessons from the British Poll Tax Disaster,” National Tax Journal, 44
(4): 421-436.
Tax Incidence
Fullerton, D. and D.L. Rogers. 1993. Who Bears the Lifetime Tax Burden?,
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Washington: Brookings Institution. Chapter 1.
Gravelle, Jennifer C. 2010. “Corporate Tax Incidence: Review of General Equilibrium
Estimates and Analysis.” Working Paper 2010-03. Congressional Budget Office.
Joint Committee on Taxation. 1993. Methodology and Issues in Measuring Changes in
the Distribution of Tax Burdens, June 14, Washington: U.S. Government Printing Office.
McLure, C.E., 1967. “The Interstate Exporting of State and Local Taxes: Estimates for
1962”, National Tax Journal, 20 (1): 49-77.
Musgrave, R.A. and D. Daicoff. 1958. “Who Pays the Michigan Taxes?” Michigan
Tax Study Staff Papers, Lansing: Secretary of Finance, 131-183.
Pechman, J.A. 1986. Who Paid the Taxes, 1966-1985, Washington: Brookings
Institution.
Taxation and Labor Supply
Duncan, Denvil and Klara Sabirianova Peter. 2009. “Does Labor Supply Respond to a
Flat Tax? Evidence from the Russian Tax Reform,” IZA Disucssion Paper No. 4257.
Saez, Emmanuel, Joel Slemrod and Seth Giertz. 2009. “The Elasticity of Taxable Income
with Respect to Marginal Tax Rates: A Critical Review,” NBER Working Paper No.
15012. http://www.nber.org/papers/w15012
Taxation and Saving
Shapiro, Matthew D. and Joel Slemrod. 2009. “Did the 2008 Tax Rebates Stimulate
Spending?,” NBER Working Paper No. 14753. http://www.nber.org/papers/w14753
Auten, G. and J. Cordes. 1991. “Cutting Capital Gains Taxes,” Journal of Economic
Perspectives, Winter, pp.181-192. http://www.jstor.org
Burman, L.E. The Labyrinth of Capital Gains Tax Policy, Washington, D.C.: Brookings.
(read chapter 4)
http://brookings.nap.edu/books/0815712707/html/index.html
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