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POLITICAL ECONOMY AND PUBLIC ECONOMICS

PUBLIC ECONOMICS

Syllabus

EN IT

Prerequisites

A first degree in Economics (with a particular focus on Microeconomics) is necessary. In particular an introductory course in public finance is also necessary (concept of taxation, at least in a competitive market). In the second module the main tool of analysis will be game theory, and the students are suggest to already know the concept of equilibrium in both static and dynamic game. Basic of mathematics is also necessary.

Program

Optimal taxation (income and commodities) is studied. The last part of the module is focused on the public procurement, theory and practice.

Books

The necessary material is uploaded on the website. The textbooks are the following:
• Intermediate Public Economics (2006). Hindriks & Myles
• Microeconomics and Behavior, Robert H. Frank Gregory, McGraw-Hill Irwin (basics of microeconomics necessary to study the first book on Public Economics)
• Handbook of Procurement. Piga, Dimitri, Spagnolo; Cambridge Press (book for the part of public procurement)
Any other further reading will be available on the website.

Bibliography

3. Public provision of public goods
Intermediate public Economics (2006), Hindriks & Myles (Ch. 5 1st edition or Ch. 6 2nd edition)
Advanced Microeconomic Theory Jehle, Reny (more challenging)

The Economics of Taxation, Salanie, B. (2002), MIT Press

Further 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: 350-35

4. Tax Models – Optimal commodity/income taxation.
Intermediate Public Economics (2006), Hindriks & Myles (Ch. 14-15 first-edition or 15-16 2nd edition)

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).

Further readings:
• 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.

Procurement
Handbook of Procurement, Piga G., Spagnolo G. and Dimitri N.

Teaching methods

Lessons and practice in class

Exam Rules

The final exam is a three-hour written test consisting of six questions, as follows. Three questions from Module 1 (2 mathematical exercises, similar but easier than those carried out during the course, and the discussion of an article chosen among those presented in class), and three questions from Module 2. Within each question there might be a choice of "sub-questions". To pass the exam it is necessary to obtain a mark of 18 in at least four questions. Questions are aimed at assessing whether the student has acquired a solid knowledge of the functioning of a modern political environment, both from a theoretical and an empirical point of view, with a special attention to the recent developments. The mark for the written exam is given by the average mark of the six questions. In each question, the scale of marks goes from 0 to 34, so students can obtain a final mark of 30 even without answering perfectly all the questions.
In addition, students can volunteer to give presentations and have their mark added to the mark of the exam. Each presentation will be given a mark from -2 to +3, which is added to the mark of the first exam session after the course only, and rounded to the nearest integer to determine the final mark of the students. Withdrawals from scheduled presentations will be marked with -2.