POLITICAL ECONOMY AND PUBLIC ECONOMICS
Updated A.Y. 2021-2022
link TEAMS to the course:
- European Public Economics: public good and common resources, the principles of optimal taxation on income and commodities, provision of public good (equity and efficiency). Basics of Procurement and Auction Theory.
You need to have covered the material of a good undergraduate economics program: a good working knowledge of intermediate microeconomics (we will make almost no use of macroeconomics) some literacy in mathematics and some knowledge of game theory is necessary, as is a basic understanding of econometrics, at least through multiple regression (you should understand how to interpret regression coefficients and be aware of the possible pitfalls in their use). The first class is devoted to review some of these tools. An introductory course in public finance is useful but not necessary. In the second module the main tool of analysis will be the revelation principle, and students are advised to study it beforehand
Detailed understanding of the provision of public good and its implications in terms of efficiency and equity. Principles of optimal income and commodity taxation in competitive market and under market power. The course also focuses on the role and use of common resources.
It is expected that the students will learn an analytical approach to the economic issues. This first module will help strengthen and ease the analysis of the second cycle of courses and make students able to develop and/or implement original ideas, potentially with original research in mind.
Please note that the dates on which material will be covered are approximate. Total 10 classes for a total of 36 hours. Classes will begin promptly; there will be a break of approximately 10-15 minutes, at an appropriate point towards the mid-point of the class.
The program of the course is divided into 3 main parts:
- An introduction to the basics of taxation
- Basic models of taxation (on demand and supply)
- Public provision of public goods.
- Samuelson’s Rule and Lindhal prices.
- Median income theorem.
- Vickrey-Clarke-Groves Mechanism
- Tax Models
- Optimal commodity taxation.
- Commodity taxation in competitive market. Ramsey’ rule.
- Commodity taxation with market power.
- Optimal income taxation.
- Basics of Procurement
- What is public procurement
- Competitive procedures
- Auction and scoring rules
The main text books are in general good enough to cover this part of the program (Gruber, Myles-Hindricks, Myles, Rosen e Gayer). The course basically follows Intermediate Public Economics (2006).
Public provision of public goods
Intermediate public Economics (2006), Hindriks & Myles (Ch. 5 1st edition or Ch. 6 2nd edition)
more challenging but not requited for the exam:
Advanced Microeconomic Theory Jehle, Reny
The Economics of Taxation, Salanie, B. (2002), MIT Press
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: 350-35
Tax Models – Optimal commodity/income taxation.
Intermediate Public Economics (2006), Hindriks & Myles (Ch. 14-15 first-edition or 15-16 2nd edition) (text-book)
Salanie, B. (2002), The Economics of Taxation, MIT Press: there are several simple model of taxation in increasingly less simple set-ups). Commodity (indirect) taxation in Chapter 3. (useful reading)
The model are highly simplified (but with all the original message intact) versions of the original difficult contribution, Diamond and Mirrlees (AER 1971).
- Matthew, Weinzierl, and Yagan (2009) “Optimal Taxation in Theory and Practice” Journal of Economic Perspective.
- Mirrlees, J.A., (1971), ”An Exploration in the Theory of Optimum Income Taxation”, Review of Economic Studies, p.175-208
- Mirrlees, J.A. (1976) ”Optimal tax theory”, Journal of Public Economics, 6, pp.327-358
- 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.
- Seade, J. (1982) ”On the Sign of the Optimum Marginal Income Tax”, Review of Economic Studies, 49, pp.637-643
- Tuomala, M. (1984) ”On the Optimal Income Taxation”, Journal of Public Economics, 23, pp.351-366
- Tuomala, M. (1985) ”Simplified formulae for optimal linear income taxation”, Scandinavian Journal of Economics, 87, pp.668-72
- Ebert, U. (1992) ”A Reexamination of the Optimal Nonlinear Income Tax”, Journal of Public Economics, 49, pp.47-73
- 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
- Slemrod, Joel,1990, “Optimal Taxation and Optimal Tax Systems,” Journal of Economic Perspectives, 4, 1: 157-178.
Handbook of Procurement, Piga G., Spagnolo G. and Dimitri N.
- An introduction to the basics of taxation
Course Web Page
The material for this course (syllabus, notes, announcements, materials) will be posted online. It is essential to consult this link, as all information regarding this course will be available there.