module specification

This module explores the theoretical rationale for an economic role for the state. It first examines the strengths and limitations of the market economy in delivering desirable economic outcomes. It then proceeds to analyse the scope for economic activity by the public sector provided by market failure, such as the existence of ‘public goods’ and externalities. Furthermore, it examines key issues in the design of commodity and income taxation, which are the principal sources of revenue by which the state is able to finance the provision of public services.
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Equivalent of 30 credits of Microeconomics at level 5

The module aims to provide students with:

1. a systematic knowledge and understanding of public economics, including a critical awareness of current issues in the subject and the available evidence;
2. an ability to apply economic principles and analysis in a variety of contexts including in business and government;
3. a range of transferable and subject-specific skills that will be of value in employment and self-employment;
4. an appreciation of the economic dimension of wider social, regional and political issues.

It also aims to develop students' skills, in particular: literacy; academic study skills; applied analysis; critical thinking; problem solving; communication, including oral presentation; and quantitative analysis.

Introduction to public economics
Review of the international evolution of the public sector since about 1900; overview of theories that can explain the observed patterns; discussion of unresolved questions;
Theoretical review: the extent and limits of private economy; general equilibrium and the ‘two folk theorems’ of social welfare.
Sources of failures of the welfare theorems (market failure): Public goods, externalities;
Public goods: The free-riding problem; the Samuelson rule;
Externalities: Instances, the ‘tragedy of the commons’, Pigouvian taxation, the Coase theorem. Implications for the environment.
Taxation: Income and commodity taxation, optimal taxation rules.

Teaching is structured around three hours of weekly contact time with the students. The three hours of contact time are structured as follows:
Integrated Lecture/workshop – two hours per week. The lecture will discuss the week’s topic by presenting the main theoretical analysis. Lecture materials will be available on Weblearn. In the Spring Term, lectures will be partitioned into two sections of one hour each. In the first section, a formal lecture will be delivered. The second section will be more workshop oriented with greater student discussion and participation.
Tutorial - one hour per week. The tutorial will go through problem sets available on WebLearn. Students are expected to prepare for these tutorials and will lead the presentation of answers to the problems and subsequent discussion.

On successful completion of this module students will be able to:

1. demonstrate a broad knowledge and a systematic understanding of public economics covering theory, policy and application;
2. understand the key facts about the evolution of the public sector across various countries in the last 100 years or so, and appreciate the questions such developments pose;
3. provide theoretical analyses of the private and public sectors as a providers of public goods, scope and limitations;
4. analyse taxation, its forms and effects, and discuss optimal taxation rules;
5. marshall evidence and critically evaluate policy issues in the subject.

The module will be assessed by a 90-minute unseen end-of-semester test and by an essay that is initially presented in a seminar. The essay is to be written up after the seminar and handed in before the end of the semester.

Hindriks, J. and Myles. G.D. (2006). Intermediate Public Economics, MIT Press
Gruber, J. (2011). Public Finance and Public Policy, 3rd ed., Worth Publishers (Macmillan)
Stiglitz, J. (2000). Economics of the Public Sector, 3rd ed., W. W. Norton & Co.
Cullis, J. and Ph. Jones (2009), “Public Finance and Public Choice: Analytical Perspectives”, 3rd ed., Oxford University Press
Barr, N. (2012), “Economics of the Welfare State”, 5th ed., Oxford University Press