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ECON 4211-001 Economics of the Public Sector

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ECON 4211-001 Economics of the Public Sector
ECONOMICS OF THE PUBLIC SECTOR: ECON 4211-001
Department of Economics, University of Colorado
Fall 2012
Classtime:
M,W,F: 11:00-11:50 a.m.
Room: ECON 119
Professor:
Office hours:
Charles de Bartolome
M 2:15-3:15 pm; Tu 9:45-10:45am;
Fri 9:15 - 10:15 am.
Office: ECON 203
e-mail: [email protected]
Textbook:
Harvey S. Rosen and Ted Gayer: Public Finance (9th edition). McGraw-Hill Irwin.
Clickers
Each student must buy a i>clicker. If you do not already own one, an i>clicker may
be purchased at the University of Colorado bookstore. Clickers will be used to give
class problems which will be scored.
Clickers should be registered at: myCUinfo.colorado.edu
Course description:
The benchmark model of economics is that markets are “good” at producing and
allocating most commodities. However, there are instances when markets do not
work well. This is termed market failure, and the course will discuss two classic
examples of market failures, viz. public goods and externalities. In such situations,
a government program may be justified on the grounds that it can improve
outcomes. In addition, markets do not always lead to equitable outcomes. In such
situations, a government program may be justified if it redistributes resources from
rich to poor families. The course discusses how the design of a program is
determined by the legislators’ objectives and by the extent to which voters are
informed. In addition to discussing the justification and design of a government
program, the course discusses the financing of the program and the design of the tax
structure.
Pre-requisites:
Intermediate Microeconomics, ECON 3070;
Introduction to Statistics with Computer Applications, ECON 3818.
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Course Assignments and Desire2Learn:
All course assignments, problem sets and some lecture notes are posted on
Desire2Learn which may be accessed at http://learn.colorado.edu .
Please note that six pages of each Adobe Acrobat file can be printed on a single
sheet by clicking as: Print>Properties>Multipage>6
Attendance at class:
Woody Allen once remarked: "90% of life is just turning up". The best way to learn
the material is to attend class. Reading the lecture notes posted on the web is not a
good substitute for attendance. Attendance at class is expected and required.
Administrative Drop:
Because attendance is important and is expected, I will drop from the class any
student who neither attends one the first three classes of the term nor gets special
permission from me for his/her absence.
Problem Sets:
Problem sets with answers will be posted for each topic. The problem sets are an
integral part of the course. They are designed to help you use the material and a
significant part of the exams will loosely follow their format.
In addition, there are many questions at the end of each chapter in the textbook. I
encourage you to work through these questions and I have posted the answers for
your use.
Grading:
There will be a midterm exam, a paper and a final exam. The student’s grade
(before any adjustment for non-attendance) will be determined as:
41% Midterm,
10% Paper
41% Final
8%. In-class clicker questions
Concerning in-class clicker questions. I will use clicker questions to reinforce the
main point of a lecture. Each correct answer will receive 1 point and an absence or
an incorrect answer will receive zero points. In calculating your total score for all
in-class clicker questions, I will sum your scores for all days, omitting your three
lowest daily scores.
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Paper timeliness:
It is important that the paper is handed in on the date due (to be announced). If the
paper is not handed in by the date due, your course score will be lowered 5% . If the
paper is not handed in by the day of the exam, you will be graded Fail. If you
subsequently hand in the paper within 6 months of the final, your grade will be
changed to the grade earned in the midterm, the final and the paper. If you do not
subsequently hand in the paper within 6 months of the final, your grade will remain
permanently as Fail.
Contributing to the group in the creation of the paper:
There have been instances in the past when a member of a group does not fully
participate in the creation of the paper. If this happens, the members of the group
who are participating should email me noting that the member of the group is not
fully participating in the creation of the paper. I will then forward this email to the
member asking for his/her comment. If he/she agrees that he/she is not fully
participating, I will increase the scores of the participating members to reflect the
fact that they are doing more work and reduce the score of the other member to
reflect the level of his/her participation. If he/she disagrees and claims to be
participating, I will summon all group members to my office to discuss.
Exams:
Because this is an advanced course, there is only one midterm. The midterm and
final will be given as:
MIDTERM: Monday 15 October
7:00 p.m. - 9:00 pm.
in MUEN E0046
FINAL:
Tuesday 18 December
in ECON 119
4:30 p.m. - 7:00 p.m.
You must bring a blue-book to each exam.
Because this is a 4000-level class, the exams will not just repeat material covered in
class. Some questions will closely follow the material covered in class and in the
problem sets, but some will ask you to apply the material in a different environment
Failure to be present at an exam:
If you fail to be present at an exam (unless you are ill and have a medical note from
your doctor or unless, before the exam, I have granted you permission to take a
make-up exam), you will score 0 in the exam.
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Classroom courtesy:
Please turn your cell ‘phone off prior to the start of class.
I believe that learning is enhanced if there is full concentration by both the
instructor and the student. Therefore, usage of laptop computers in class is
restricted to following the course notes. To facilitate this, laptops may only be used
in the front two rows of the classroom.
Students with Special Needs:
If you qualify for accommodations because of a disability, please submit to me a
letter from Disability Services in a timely manner so that your needs may be
addressed. Disability Services determines accommodations based on documented
disabilities. Contact:303-492-8671; Center for Community Building, Room N200;
or http://www.colorado.edu/disabilityservices .
If you have a temporary medical condition or injury, please see the guidelines at:
www.colorado.edu/disabilityservices/go.cgi?select=temporary.html
Disability Services’ letters for students with disabilities indicate legally mandated
reasonable accommodations. Answers to Frequently Asked Questions can be found
at: http://ww.colorado.edu/disabilityservices .
Discrimination and Harassment Policy:
The University of Colorado at Boulder is committed to maintaining a positive
learning, working, and living environment. The University of Colorado does not
discriminate on the basis of race, color, national origin, sex, age, disability, creed,
religion, sexual orientation, or veteran status in admission and access to, and
treatment and employment in, its educational programs and activities. (Regent Law,
Article 10, amended 11/08/2001). CU-Boulder will not tolerate acts of
discrimination or harassment based upon Protected Classes or related retaliation
against or by any employee or student. For purposes of this CU-Boulder policy,
“Protected Classes” refers to race, color, national origin, sex, pregnancy, age,
disability, creed, religion, sexual orientation, gender identity, gender expression, or
veteran status. Individuals who believe they have been discriminated against should
contact the Office of Discrimination and Harassment (ODH) at (303) 492-2127 or
the Office of Student Conduct (OSC) at (303) 492-5550. Information about the
ODH, the above referenced policies, and the campus resources available to assist
individuals regarding discrimination or harassment can be obtained at
http://www.colorado.edu/odh
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Religious Observances:
Campus policy regarding religious observances requires that faculty make every
effort to reasonably and fairly deal with all students who, because of religious
obligations, have conflicts with scheduled exams, assignments or required
attendance. In this class, please let me know in a timely manner if one of the exam
dates falls on a religious holiday you intend to observe and I will arrange for you to
take a make-up. See policy details at:
http://www.colorado.edu/policies/fac_relig.html
Classroom Behavior:
Students and faculty each have responsibility for maintaining an appropriate
learning environment. Students who fail to adhere to such behavioral standards may
be subject to discipline. Professional courtesy and sensitivity are especially
important with respect to individuals and topics dealing with differences of race,
color, culture, religion, creed, politics, veteran’s status, sexual orientation, gender,
gender identity and gender expression, age, disability, and nationalities. Class
rosters are provided to the instructor with the student's legal name. I will gladly
honor your request to address you by an alternate name or gender pronoun. Please
advise me of this preference early in the semester so that I may make appropriate
changes to my records. See policies at
http://www.colorado.edu/policies/classbehavior.html and at
http://www.colorado.edu/studentaffairs/judicialaffairs/code.html#student_code
Academic Integrity:
All students of the University of Colorado at Boulder are responsible for knowing
and adhering to the academic integrity policy of this institution. Violations of this
policy may include: cheating, plagiarism, aid of academic dishonesty, fabrication,
lying, bribery, and threatening behavior. All incidents of academic misconduct
shall be reported to the Honor Code Council ( [email protected] ; 303-7352273). Students who are found to be in violation of the academic integrity policy
will be subject to both academic sanctions from the faculty member and nonacademic sanctions (including but not limited to university probation, suspension,
or expulsion). Other information on the Honor Code can be found at:
http://www.colorado.edu/policies/honor.html and at
http://www.colorado.edu/academics/honorcode/
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COURSE OUTLINE
Date
Topic
Chapter
1. INTRODUCTION
27 Aug
INTRODUCTION
The Four Questions of Public Finance
Separation of expenditure and taxes
Government size.
Normative v. positive
1
29 Aug
FISCAL FEDERALISM
Assignment of responsibilities
22
Problem Set: Fiscal Federalism
31 Aug
POSITIVE ECONOMICS
The need for a model
2
5 Sept
NORMATIVE ECONOMICS: THE OBJECTIVE
Pareto-efficiency
Welfare functions
Need for a model
3
2. BASE CASE: COMPETITIVE MARKETS
7, 10, 12 Sept
PRIVATE GOODS
Competitive outcome.
First fundamental welfare theorem.
Second fundamental welfare theorem.
Problem Set: First Fundamental Welfare Theorem
Problem Set: Public Provision of Private Goods
Problem Set: Second Fundamental Welfare Theorem
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3 (cont)
3. MARKET FAILURE: PUBLIC GOODS
14, 17, 19, 21,
24, 26 Sept
PUBLIC GOODS
Non-rivalness and non-excludability.
Efficient provision.
Free-rider problem.
Public vs. private provision.
4
Problem Set: Why the lights don’t get turned off after class.
Problem Set: Non-excludable public good.
Problem Set: Excludable public good.
4. GOVERNMENT FAILURE: PUBLIC DECISION-MAKING
28 Sept
PUBLIC DECISION-MAKING
1, 3, 5, 8, 10, 12 Oct Normative: Benefit-cost analysis
Positive:
Informed voters:
- majority voting - median voter theorem.
- cycling.
- Arrow impossibility theorem.
Uninformed voters:
- the iron triangle.
Problem Set: Benefit-Cost Analysis.
Problem Set: Voting
Problem Set: Cycling.
15 Oct
Review
MIDTERM (7:00 - 9:00 p.m. in MUEN E0046 )
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8
6
5. MARKET FAILURE: EXTERNALITIES
17, 19, 22, 24, 26,
29 Oct
EXTERNALITIES
Efficient behavior.
Coase theorem.
Pigou taxes and subsidies.
Regulation.
5
Problem Set: the Coase theorem.
Problem Set: Pigou tax.
Problem Set: Permit sales.
Problem Set: Regulation
4. INCOME REDISTRIBUTION
31 Oct
2, 5, 7, 9 Nov
INCOME REDISTRIBUTION
Process or end-state criterion.
Equity and social welfare functions.
Utilitarianism.
Max-min and the original position.
The shrinking pie.
The equity v. efficiency trade-off.
Public provision of private goods.
12, 13
Problem Set: Social welfare and income redistribution.
Problem Set: Redistribution Program
5. TAX ANALYSIS
12, 14, 16 Nov
PUBLIC FINANCE: TAX OR DEFICIT FINANCING
Ricardo equivalence.
Keynes view.
Overlapping-generation model.
Traditional argument.
Crowding-out of capital.
Social Security
Problem Set: Tax or deficit financing.
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20
11
Problem Set: Social security and savings.
Problem Set: Demographic issues
26, 28, 30 Nov
3 Dec
TAXATION: PRODUCT AND INCOME TAXES
Do sales taxes reduce consumption
Do labor taxes reduce effort?
Do capital taxes reduce savings?
Excess Burdens
15
Problem Set: Setting the product tax rate.
Problem Set: Product tax: excess burden.
Problem Set: Setting the income tax rate.
Problem Set: Income tax - excess burden.
5, 7, 10, 12, 14 Dec
TAXATION: NORMATIVE RULES FOR SETTING TAX RATES
Tax rules
16
Tax reform
Problem Set: Tax Reform
18 Dec
FINAL EXAM (4:30 p.m. - 7.00 p.m. in ECON 119)
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