Public Economics - Period 4 Social Sciences & Humanities Program Spring 2023 Semester - Amsterdam

Public economics (public finance) is concerned with the role of the public sector (and in particular the government) in a market economy. This course covers an array of topics central to economic policy making, and will discuss underlying economic theory, but also embed it in the context of empirical research on policy evaluation that has given new impetus to public economic thinking.

Classic topics include the correction of market failure in the presence of public goods (judicial system or national defence), as well as distributional goals with which welfare state institutions are concerned. We discuss welfare implications of taxation of incomes, consumption, or wealth, implied by adverse incentive effects on economic behavior. The central trade-off in public finance is that between the dual goals of efficiency and equity, and we argue that government policy is at most second-best relative to the goal overall maximization of social welfare. The course will also reflect on behavioral public finance aspects that point to limitations and challenges for economic policy making when citizens are boundedly rational and may not react as desired to public interventions. There may be a role for the government as choice architect.

Problems triggered by asymmetric information constitute another central aspect of modern public finance, and accordingly tools will be applied to issues in social insurance design. In addition, the course will discuss issues of public choice and political economy when discussing strategic lobbying and rent-seeking, or institutional structures that reflect the provision of local and interjurisdictional public goods (fiscal federalism). We close with aspects of international taxation (tax avoidance, evasion, and tax competition).

During the course both theoretical and empirical economic work in policy context is discussed.

Vrije Universiteit Amsterdam (VU Amsterdam) awards credits based on the ECTS system. Contact hours listed under a course description may vary due to the combination of lecture-based and independent work required for each course therefore, CEA's recommended credits are based on the ECTS credits assigned by VU Amsterdam. 1 ECTS equals 28 contact hours assigned by VU Amsterdam.