Objectives

Public Finance is taught in French and is offered primarily to 3rd year students in the Bachelor in Economics, as well as in Management. Other students (e.g. Mobility, Erasmus, qualifying year MSc, other faculties) are also admissible with professor's consent. It focuses on the supply and financing of goods and services by the state in market economies. We study the relevance, as well as the optimal response of agents to these interventions.

Students registered in Public Finance should have a solid background in Microeconomic Theory, and Mathematics for Economists, including optimisation, preference representation, partial and general equilibrium analysis.

Contents

1. Introduction (Leach, 2004, ch. 1, 2-5; Rosen, 2005, ch. 1-3; Atkinson and Stiglitz, 1980, ch. 1, 11)

• Two fundamental theorems
• Market failures
• Information and second theorem
• Role of two theorems
• Role of governments
• Overview Swiss public sector

2. Positive and normative analysis

• Positive analysis
• Normative analysis

3. Perfect public goods (Leach, 2004, ch. 10-13; Rosen, 2005, ch. 4, 5; Atkinson and Stiglitz, 1980, ch. 16)

• Optimal allocation
• Decentralized allocaiton
• Application: Knowledge
• Income redistribution and public goods

4. Imperfect public goods (Leach, 2004, ch. 10-13; Rosen, 2005, ch. 4, 5; Atkinson and Stiglitz, 1980, ch. 16)

• Introduction
• Club goods
• Varying intensity public goods

5. Externalities (Leach, 2004, ch. 6-9; Rosen, 2005, ch. 5; Atkinson and Stiglitz, 1980, ch. 11, 14, 16; Deiss et Gugler, ch. 4.1, 5)

• Introduction
• Main characteristics
• Analysis
• Market responses
• Public responses
• Application: Common, renewable resources

6. Income redistribution (Leach, 2004, ch. 23-25; Rosen, 2005, ch. 7, 8; Atkinson and Stiglitz, 1980, ch. 9; Deiss et Gugler, ch. 10)

• Labor income determinants
• Motivations for income distribution
• Other motivations
• Obstacles for redistribution
• Targetted programs

7. Social insurance* (Leach, 2004, ch. 22; Rosen, 2005, ch. 10; Deiss et Gugler, ch. 10)

• Introduction: Swiss case
• Motivations for public provision
• Characteristics (AVS, AI)
• Effects on behavior
• Reforms and trends

8. Fiscal theory (Leach, 2004, ch. 16-18, 24; Rosen, 2005, ch. 12-16; Atkinson and Stiglitz, 1980, ch. 2-9; Deiss et Gugler, ch. 6, 15)

• Lump sum vs goods and income taxes
• Preference for leisure
• Efficiency and equity

9. Political economy (Leach, 2004, ch. 26; Rosen, 2005, ch. 6, 20; Atkinson and Stiglitz, 1980, ch. 10, 17; Deiss et Gugler, ch. 2.3)

• Unanimous rules: Lindhal model
• Majority rules
• Median voter theory
• Logrolling
• Arrow's impossibility theorem
• Democracy and representation
• Growth in public share of output
• Spending control and timing

10. Fiscal federalism* (Rosen, 2005, ch. 20)

• Introduction
• Regroupings formation
• Tiebout model
• Optimal federalism
• Property taxes and transfers

*: If time permits

References

• Atkinson, Anthony B. and Joseph E. Stiglitz (1980) Lectures on Public Economics (New York NY: McGraw Hill)
• Leach, John (2004) A Course in Public Economics (New York, NY : Cambridge University Press)
• Rosen, Harvey S. (2005) Public Finance (New York, NY : McGraw Hill)
• Weber, Luc and Milad Zarin-Nejadan and Alain Schönenberger, Economie et Finances Publiques (2017), (Paris: Economica)
• Deiss, Joseph et Philippe Gugler (2012), Politique Economique et Sociale (Bruxelles: DeBoeck)
• Chiang, A. C., Fundamental Methods of Mathematical Economics, Mc-Graw-Hill Book Company, 1984.
• Simon, C. P. and L. Blume, Mathematics for Economists, W.W. Norton & Company, 1994.

Evaluation

First attempt

Exam:

Written 2 hours

Documentation:

Not allowed

Calculator:

Not allowed

Evaluation:

1. Mid-term exam: 50%. This exam will be held in class and covers material from first half of course.
2. Final online exam: 50%. This exam will be held during formal exam period and covers material from second half of course.

Retake

Exam:

Written 2 hours

Documentation:

Not allowed

Calculator:

Not allowed

Evaluation:

In the event where a makeup exam would be required, this exam will cover the entire course (i.e. the material from both the first half and second half of the course) and only the grade from this makeup exam will be used to compute the final grade.