Modern Public Economics

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ISBN: 9780415143141 | 0415143144
Cover: Hardcover
Copyright: 1/22/1998

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Modern Public Economics covers this popular subject area in an accessible and user-friendly way. It provides a theoretical approach to the analysis of public economics. Topics are coherently explored and include welfare economics, taxation theory, applied problems in public economics and fiscal federalism. All results are explicitly derived, making analysis of topics much clearer for students. The book also interweaves topics from the frontiers of research, giving students a basis from which to participate in contemporary discussions. This book will be of great use to advanced undergraduates and also postgraduates in public economics.

Preface

xii

Part I Welfare economics

(68)

Introduction to Part I

(3)

1 A quick primer on consumer demand

(16)

1.1 Introduction

(1)

1.2 Some key definitions

(4)

1.3 Utility functions

(1)

1.4 The consumer's utility maximization problem

(5)

1.5 Some other useful relations in demand theory

(1)

1.6 Consumer's surplus and measurement of Welfare Changes

(4)

1.7 Conclusions

(1)

2 Perfect competition and Pareto optimality

(26)

2.1 Introduction

(1)

2.2 Paretian ranking of social states

(1)

2.3 Pareto optimality

(5)

2.4 The classical theorems of welfare economics

(9)

2.5 An extension to the case of uncertainty

(8)

2.6 The theorem of second best

(2)

2.7 Conclusions

(1)

3 Forms of the Social welfare function

(23)

3.1 Introduction

(1)

3.2 Early attempts at formulating an approach to distribution

(5)

3.3 Aggregating individual preferences to arrive at social choice

(2)

3.4 Arrow's general possibility and other impossibility theorems

(7)

3.5 Beyond the Arrow framework

(2)

3.6 Forms of social welfare functions

(3)

3.7 Concluding remarks

(4)

Part II The theory of public expenditure

(76)

Introduction to Part II

(3)

4 External effects and the market mechanism

(16)

4.1 Introduction

(1)

4.2 Effects of externalities

(5)

4.3 A policy example: the pricing of education

(4)

4.4 Common property resources

(2)

4.5 Multilateral externalities

(2)

4.6 Conclusions

(2)

5 The theory of pure public goods

(25)

5.1 Introduction

(1)

5.2 Pareto optimality with pure public goods

(3)

5.3 Public goods with distortionary taxation

(1)

5.4 The free-rider problem

(9)

5.5 Private provision of public goods

103

(5)

5.6 Voting models of public goods

108

(4)

5.7 Concluding remarks

112

(2)

6 Topics in the theory of public goods

114

(32)

6.1 Introduction

114

(1)

6.2 The theory of clubs

114

(3)

6.3 The Tiebout hypothesis

117

(5)

6.4 Multi-product clubs

122

(4)

6.5 Financing pure public goods with distortionary taxation

126

(3)

6.6 Public goods provision with asymmetric information

129

(6)

6.7 Rent seeking

135

(7)

6.8 Conclusions

142

(4)

Part III The theory of taxation

146

(244)

Introduction to Part III

146

(3)

7 The effects of taxes on savings

149

(28)

7.1 Introduction

149

(1)

7.2 The elementary life-cycle model of saving

149

(5)

7.3 Capital market imperfections and the life-cycle model

154

(3)

7.4 Broader life-cycle models of savings and taxes

157

(1)

7.5 Aggregate savings and taxation

158

(3)

7.6 A consumption/expenditure tax

161

(7)

7.7 Savings by firms

168

(1)

7.8 Social security, pensions and savings

168

(2)

7.9 The extended life-cycle models of savings

170

(3)

7.10 Empirical evidence on effects of taxes on savings

173

(2)

7.11 Conclusions

175

(2)

8 Taxation and labor supply

177

(22)

8.1 Introduction

177

(1)

8.2 The basic model of labor supply

177

(3)

8.3 Comparison of the effects of various types of taxes

180

(1)

8.4 Taxation and the decision to enter the labor market

181

(3)

8.5 Effects of a progressive tax on labor supply

184

(7)

8.6 A summary of the empirical evidence on effects of lower taxes on labor supply

191

(5)

8.7 Conclusions

196

(1)

Appendix

197

(2)

9 The effects of taxes on investment behavior

199

(25)

9.1 Introduction

199

(1)

9.2 The Fisherian model

199

(4)

9.3 The aggregate approach

203

(10)

9.4 Comparing the effects of an investment tax credit versus a corporate tax cut: A Cobb-Douglas example

213

(2)

9.5 Decision on the financing of investment expenditure

215

(1)

9.6 The effective rate of taxation and the cost of finance

215

(7)

9.7 Conclusions

222

(2)

10 Taxation and risk taking

224

(15)

10.1 Introduction

224

(1)

10.2 Effects of taxation on risk taking by households

224

(4)

10.3 The Modigliani-Miller theorem and decisions on the financing of investment expenditure

228

(8)

10.4 The effects of progression on risk taking

236

(2)

10.5 Concluding comments

238

(1)

11 The theory of tax incidence

239

(22)

11.1 Introduction

239

(1)

11.2 Tax incidence in the two-sector model of general equilibrium

240

(8)

11.3 Tax incidence in a model of involuntary unemployment

248

(5)

11.4 Extensions of the basic model

253

(1)

11.5 Tax incidence in a model with a rate of return regulation

254

(5)

11.6 Conclusions

259

(2)

12 Tax incidence in dynamic models

261

(31)

12.1 Introduction

261

(1)

12.2 The neoclassical model of economic growth

261

(4)

12.3 Balanced growth path tax incidence

265

(2)

12.4 Taxation in the life-cycle model

267

(3)

12.5 Tax incidence in a monetary version of the Solow model

270

(2)

12.6 Tax incidence in more general life-cycle models

272

(10)

12.7 Land rent taxation in an intertemporal economy

282

(2)

12.8 Tax and debt as revenue instruments

284

(5)

12.9 Conclusions

289

(3)

13 Some results in commodity taxation

292

(20)

13.1 Introduction

292

(1)

13.2 Elasticity type rules in commodity taxation

292

(6)

13.3 Uniform commodity taxation

298

(1)

13.4 Redistributive indirect taxation

299

(4)

13.5 Extent of redistribution through commodity taxation

303

(3)

13.6 The value added tax (VAT)

306

(5)

13.7 Conclusions

311

(1)

14 Aspects of income taxation

312

(29)

14.1 Introduction

312

(1)

14.2 Optimal linear taxation

312

(3)

14.3 Optimal non-linear income taxation (Mirrlees and Ramsey)

315

(7)

14.4 Information theoretic foundations of optimal tax theory

322

(7)

14.5 Optimal taxation with imperfect substitution of labor

329

(2)

14.6 Optimal wage and interest taxation in steady state

331

(5)

14.7 The optimal mix of direct and indirect taxes

336

(3)

14.8 Conclusions

339

(1)

Appendix

340

(1)

15 Topics in the theory of taxation

341

(25)

15.1 Introduction

341

(1)

15.2 Taxation in models of endogenous growth

341

(4)

15.3 Problems of income tax indexation

345

(3)

15.4 Time inconsistency

348

(7)

15.5 Tax compliance and tax evasion

355

(6)

15.6 Intertemporal tax evasion: Andreoni's model

361

(3)

15.7 Concluding comments

364

(2)

16 Tax reform

366

(24)

16.1 Introduction

366

(6)

16.2 Welfare foundations of tax reform

372

(5)

16.3 Tax reform in a dynamic context

377

(5)

16.4 The marginal approach to tax reform

382

(5)

16.5 Conclusions

387

(3)

Part IV Applied problems in public economics

390

(72)

Introduction to Part IV

390

(1)

17 Pricing in the public sector

391

(33)

17.1 Introduction

391

(1)

17.2 The Ramsey-Boiteux linear pricing problem

391

(4)

17.3 Some simplified examples

395

(2)

17.4 The optimality of marginal cost pricing

397

(5)

17.5 Second best Ramsey-Boiteux pricing once again

402

(3)

17.6 Redistributive Ramsey (Feldstein) pricing -- the general case

405

(1)

17.7 Multi-part tariffs

406

(7)

17.8 Peak load pricing

413

(4)

17.9 Pricing of joint products-allocation of common costs

417

(6)

17.10 Conclusions

423

(1)

18 International aspects of taxation

424

(19)

18.1 Introduction

424

(1)

18.2 The theory of tariffs in an open economy

424

(6)

18.3 International fiscal coordination: interest taxation

430

(5)

18.4 Integrating personal and corporate taxation in an open economy

435

(4)

18.5 Ramsey optimal taxation in an open economy

439

(1)

18.6 Concluding remarks

440

(3)

19 Cost-benefit analysis

443

(19)

19.1 Introduction

443

(2)

19.2 Criteria for cost-benefit analysis

445

(2)

19.3 The social rate of discount

447

(2)

19.4 Evaluating benefits and costs -- shadow prices

449

(9)

19.5 Some difficulties in the measurement of benefits and costs

458

(1)

19.6 Conclusions

458

(4)

Part V Fiscal Federalism

462

(46)

Introduction to Part V

462

(1)

20 Issues in fiscal federalism

463

(21)

20.1 Introduction and background

463

(1)

20.2 Efficiency and equity in a federal economy

464

(1)

20.3 Equity considerations with layers of governments

465

(1)

20.4 Rationale for the existence of subcentral authorities

466

(6)

20.5 Other roles of subcentral authorities

472

(1)

20.6 The optimal size of local jurisdications

473

(5)

20.7 Conclusions

478

(1)

Appendix

479

(5)

21 Grants and taxes in federal countries

484

(24)

21.1 Introduction

484

(1)

21.2 Purposes of grants

484

(4)

21.3 Types of grants

492

(1)

21.4 The effects of various types of grants -- traditional models

493

(5)

21.5 The new models of the effects of grants

498

(3)

21.6 Tax assignment in federal countries

501

(5)

21.7 Conclusions

506

(2)

Problems

508

(13)

Bibliography

521

(29)

Name index

550

(4)

Subject index

554

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Modern Public Economics

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