Public Finance

Title
Table of Contents
Part I GETTING STARTED
	1 INTRODUCTION
		Public Finance and Ideology
			Organic View of Government
			Mechanistic View of Government
			Viewpoint of This Book
		Government at a Glance
			The Legal Framework
			The Size of Government
			Expenditures
			Revenues
			Our Agenda
		Summary
		Discussion Questions
		Appendix: Doing Research in Public Finance
	2 TOOLS OF POSITIVE ANALYSIS
		The Role of Theory
		Causation versus Correlation
		Experimental Studies
			Conducting an Experimental Study
			Pitfalls of Experimental Studies
		Observational Studies
			Conducting an Observational Study
			Pitfalls of Observational Studies
		Quasi-Experimental Studies
			Conducting a Quasi-Experimental Study
			Pitfalls of Quasi-Experimental Studies
		Conclusions
		Summary
		Discussion Questions
	3 TOOLS OF NORMATIVE ANALYSIS
		Welfare Economics
			Pure Economy Exchange
			Production Economy
		The First Fundamental Theorem of Welfare Economics
		Fairness and the Second Fundamental Theorem of Welfare Economics
		Market Failure
			Market Power
			Nonexistence of Markets
			Overview
		Buying into Welfare Economics
		Summary
		Discussion Questions
Part II PUBLIC EXPENDITURE: PUBLIC GOODS AND EXTERNALITIES
	4 PUBLIC GOODS
		Public Goods Defined
		Efficient Provision of Public Goods
			Deriving the Efficiency Condition
			Problems in Achieving Efficiency
			The Free Rider Problem
		The Privatization Debate
			Public versus Private Provision
			Public versus Private Production
		Public Goods and Public Choice
		Summary
		Discussion Questions
		Appendix: Preference Revelation Mechanisms
	5 EXTERNALITIES
		The Nature of Externalities
		Graphical Analysis
			Implications
			Conclusion
		Private Responses
			Bargaining and the Coase Theorem
			Mergers
			Social Conventions
		Public Responses to Externalities: Taxes and Subsidies
			Taxes
			Subsidies
		Public Responses to Externalities: Emissions Fees and Cap-and-Trade Programs
			Emissions Fee
			Cap-and-Trade
			Emissions Fee versus Cap-and-Trade
			Command-and-Control Regulation
		The US Response
			Progress with Incentive-based Approaches
		Implications for Income Distribution
			Who Benefits?
			Who Bears the Cost?
		Positive Externalities
			A Cautionary Note
		Summary
		Discussion Questions
	6 POLITICAL ECONOMY
		Direct Democracy
			Unanimity Rules
			Majority Voting Rules
			Logrolling
			Arrow’s Impossibility Theorem
		Representative Democracy
			Elected Politicians
			Public Employees
			Special Interests
			Other Actors
		Explaining Government Growth
			Controlling Government Growth
			Conclusions
		Summary
		Discussion Questions
	7 EDUCATION
		Justifying Government Intervention in Education
			Is Education a Public Good?
			Externalities?
			Is the Education Market Inequitable?
		What can Government Intervention in Education Accomplish?
			Does Government Intervention Crowd Out Private Education?
			Does Government Spending Improve Educational Outcomes?
			Public Spending and the Quality of Education
			Does Education Increase Earnings?
		New Directions for Public Education
			Charter Schools
			Vouchers
			School Accountability
		Summary
		Discussion Questions
	8 COST-BENEFIT ANALYSIS
		Present Value
			Projecting Present Dollars into the Future
			Projecting Future Dollars into the Present
			Inflation
		Private Sector Project Evaluation
			Internal Rate of Return
			Benefit-Cost Ratio
		Discount Rate for Government Projects
			Rates Based on Returns in the Private Sector
			Social Discount Rate
			Discounting and the Economics of Climate Change
			Government Discounting in Practice
		Valuing Public Benefits and Costs
			Market Prices
			Adjusted Market Prices
			Consumer Surplus?
			Inferences from Economic Behavior
			Valuing Intangibles
		Games Cost-Benefit Analysts Play
			The Chain-Reaction Game
			The Labor Game
			The Double-Counting Game
		Distributional Considerations
		Uncertainty
		An Application: Are Reductions in Class Size Worth It?
			Discount Rate
			Costs
			Benefits
			The Bottom Line and Evaluation
		Use (and Nonuse) by Government
		Summary
		Discussion Questions
		Appendix: Calculating the Certainty Equivalent Value
Part III PUBLIC EXPENDITURE: SOCIAL INSURANCE AND INCOME MAINTENANCE
	9 THE HEALTH CARE MARKET
		What’s Special about Health Care?
			The Role of Insurance
			The Role of Risk Pooling
			Adverse Selection in the Health Insurance Market
			Insurance and Moral Hazard
			Other Information Problems in the Health Care Market
			Externalities of Health Care
		Do We Want Efficient Provision of Health Care?
			Paternalism
			The Problem of the Uninsured
			High Health Care Costs
		Summary
		Discussion Questions
	10 GOVERNMENT AND THE MARKET FOR HEALTH CARE
		Private Health Insurance
			The Implicit Subsidy for Employer-Provided Insurance
			The Advantages of Employer-Provided Health Insurance
			Employer-Provided Health Insurance and Job Lock
			Cost Control and Private Insurance
		Government Provision of Health Insurance: Medicare and Medicaid
			Medicare: Overview
			Cost Control under Medicare
			Medicare: Impacts on Spending and Health
			Medicaid: Overview
			Medicaid: Impacts on Health
		Health Care Reform
			Mandates
			Health Savings Accounts
			Single Payer
			Final Thoughts
		Summary
		Discussion Questions
	11 SOCIAL SECURITY
		Why Have Social Security?
			Consumption Smoothing and the Annuity Market
			Adverse Selection and the Annuity Market
			Other Justifications
		Structure of Social Security
			Basic Components
			Distributional Issues
			The Trust Fund
		Effects of Social Security on Economic Behavior
			Saving Behavior
			Retirement Decisions
			Implications
		Long-Term Stresses On Social Security
		Social Security Reform
			Maintain the Current System
			Privatize the System
		Conclusions
		Summary
		Discussion Questions
	12 INCOME REDISTRIBUTION: CONCEPTUAL ISSUES
		Distribution of Income
			Interpreting the Distributional Data
			Rationales for Income Redistribution
			Simple Utilitarianism
			The Maximin Criterion
			Pareto Efficient Income Redistribution
			Nonindividualistic Views
			Other Considerations
		Expenditure Incidence
			Relative Price Effects
			Public Goods
			Valuing In-Kind Transfers
			Reasons for In-Kind Transfers
		Conclusion
		Summary
		Discussion Questions
	13 EXPENDITURE PROGRAMS FOR THE POOR
		A Quick Look at Welfare Spending
		TANF
		Income Maintenance and Work Incentives
			The Basic Trade-offs
			Analysis of Work Incentives
			Work Requirements
			Time Limits
			Family Structure
			National versus State Administration
		The Earned Income Tax Credit
		Supplemental Security Income
		Medicaid
		Unemployment Insurance
			Benefits
			Financing
			Effects on Unemployment
		Food Stamps And Child Nutrition
		Housing Assistance
		Programs To Enhance Earnings
			Education
			Employment and Job Training
		Overview
		Summary
		Discussion Questions
Part IV FRAMEWORK FOR TAX ANALYSIS
	14 TAXATION AND INCOME DISTRIBUTION
		Tax Incidence: General Remarks
			Only People Can Bear Taxes
			Both Sources and Uses of Income Should Be Considered
			Incidence Depends on How Prices Are Determined
			Incidence Depends on the Disposition of Tax Revenues
			Tax Progressiveness Can Be Measured in Several Ways
		Partial Equilibrium Models
			Unit Taxes on Commodities
			Ad Valorem Taxes
			Taxes on Factors
			Commodity Taxation without Competition
			Profits Taxes
			Tax Incidence and Capitalization
		General Equilibrium Models
			Tax Equivalence Relations
			The Harberger Model
			Analysis of Various Taxes
			Some Qualifications
			An Applied Incidence Study
		Conclusions
		Summary
		Discussion Questions
	15 TAXATION AND EFFICIENCY
		Excess Burden Defined
			Questions and Answers
		Excess Burden Measurement With Demand Curves
			Preexisting Distortions
			The Excess Burden of a Subsidy
			The Excess Burden of Income Taxation
		Differential Taxation of Inputs
		Does Efficient Taxation Matter?
		Summary
		Discussion Questions
		Appendix A: Formula for Excess Burden
		Appendix B: Multiple Taxes and The Theory of The Second Best
	16 EFFICIENT AND EQUITABLE TAXATION
		Optimal Commodity Taxation
			The Ramsey Rule
			Equity Considerations
			Summary
			Application: Taxation of the Family
		Optimal User Fees
			Overview
		Optimal Income Taxation
			Edgeworth’s Model
			Modern Studies
		Politics and The Time Inconsistency Problem
		Other Criteria for Tax Design
			Horizontal Equity
			Costs of Running the Tax System
			Tax Evasion
		Overview
		Summary
		Discussion Questions
Part V THE UNITED STATES REVENUE SYSTEM
	17 THE PERSONAL INCOME TAX
		Basic Structure
		Defining Income
			Items Included in H-S Income
			Some Practical and Conceptual Problems
			Evaluating the H-S Criterion
		Excludable Forms of Money Income
			Interest on State and Local Bonds
			Some Dividends
			Capital Gains
			Employer Contributions to Benefit Plans
			Some Types of Saving
			Gifts and Inheritances
		Exemptions and Deductions
			Exemptions
			Deductions
			Impact on the Tax Base
			Tax Expenditures
			The Simplicity Issue
		Rate Structure
			Effective versus Statutory Rates
		Taxes and Inflation
			How Inflation Can Affect Taxes
			Coping with the Tax/Inflation Problem
		The Alternative Minimum Tax
		Choice of Unit and The Marriage Tax
			Background
			Analyzing the Marriage Tax
		Treatment of International Income
		State Income Taxes
		Politics And Tax Reform
		Summary
		Discussion Questions
	18 PERSONAL TAXATION AND BEHAVIOR
		Labor Supply
			Theoretical Considerations
			Some Caveats
			Labor Supply and Tax Revenues
		Saving
			Tax-Preferred Savings Accounts
			Taxes and the Capital Shortage
		Housing Decisions
			Proposals for Change
		Portfolio Composition
		A Note on Politics and Elasticities
		Summary
		Discussion Questions
	19 THE CORPORATION TAX
		Why Tax Corporations?
		Structure
			Employee Compensation Deducted
			Interest, but Not Dividends, Deducted
			Depreciation Deducted
			Investment Tax Credit
			Treatment of Dividends versus Retained Earnings
			Effective Tax Rate on Corporate Capital
		Incidence and Excess Burden
			A Tax on Corporate Capital
			A Tax on Economic Profits
		Effects on Behavior
			Total Physical Investment
			Types of Asset
			Corporate Finance
		State Corporation Taxes
		Taxation of Multinational Corporations
			Evaluation
		Corporation Tax Reform
			Full Integration
			Dividend Relief
		Summary
		Discussion Questions
	20 DEFICIT FINANCE
		How Big Is the Debt?
			Interpreting Deficit, Surplus, and Debt Numbers
			Summing Up
		The Burden of The Debt
			Lerner’s View
			An Overlapping Generations Model
			Neoclassical Model
			Ricardian Model
			Overview
		To Tax or to Borrow?
			Benefits-Received Principle
			Intergenerational Equity
			Efficiency Considerations
			Macroeconomic Considerations
			Moral and Political Considerations
		Overview
		Summary
		Discussion Questions
	21 FUNDAMENTAL TAX REFORM: TAXES ON CONSUMPTION AND WEALTH
		Efficiency and Equity of Personal Consumption Taxes
			Efficiency Issues
			Equity Issues
		Retail Sales Tax
			Rationalizations
			Efficiency and Distributional Implications of State Sales Taxes
			A National Retail Sales Tax?
		Value-Added Tax
			Implementation Issues
			A VAT for the United States?
		Hall-Rabushka Flat Tax
		Cash-Flow Tax
		Income versus Consumption Taxation
			Advantages of a Consumption Tax
			Disadvantages of a Consumption Tax
			Problems with Both Systems
		Wealth Taxes
		Estate and Gift Taxes
			Rationales
			Provisions
			Reforming Estate and Gift Taxes
		Prospects for Fundamental Tax Reform
		Summary
		Discussion Questions
Part VI MULTIGOVERNMENT PUBLIC FINANCE
	22 PUBLIC FINANCE IN A FEDERAL SYSTEM
		Background
		Community Formation
		The Tiebout Model
			Tiebout’s Assumptions
			Tiebout and the Real World
		Optimal Federalism
			Disadvantages of a Decentralized System
			Advantages of a Decentralized System
			Implications
			Public Education in a Federal System
		Property Tax
			Incidence and Efficiency Effects
			Why Do People Hate the Property Tax So Much?
		Intergovernmental Grants
			Types of Grants
			The Flypaper Effect
			Intergovernmental Grants for Education
		Overview
		Summary
		Discussion Questions
APPENDIX: SOME BASIC MICROECONOMICS
GLOSSARY
REFERENCES
NAME INDEX
SUBJECT INDEX