Public Finance, fall 2011

course web page




Writeup: Optimal government size in a simple model


Writeup: Progressivity / regressivity of simple tax structures


Slides: Externalities and Pigovian taxes, part 1


Slides: Externalities and Pigovian taxes, part 2


Topics to review for midterm


Labor supply worksheet


exams for this course posted after completion: midterm, final


Homework assignments…


Assignment 1

This is a relatively free-form assignment that lets you express any insight that you might have into the federal debt ceiling agreement reached on 8/2, and the negotiations leading up to it. For example, you may or may not want to address some of these questions:

• What are the provisions of the agreement, and how do they compare with what you would have recommended, if asked?

• Critically evaluate the process used to decide the issue. Can you think of alternative process that might be used for budget and/or debt ceiling negotiations? What advantages might your suggestion have?

• Is it appropriate to refer to these events as a debt-ceiling ‘crisis’? If so, what was the crisis, and what led to it?

Feel free to cite sources such as news articles (giving the name, date, publication, and author) and academic journal articles. Feel free also to use the tools that you’ve learned in previous economics classes, if they are applicable. The length of your essay should be determined by how much you have to say on the subject.


Assignment 2

As the third edition of Gruber’s book was written during the debate over a national health care law (and as Gruber himself largely specializes in health economics), it devotes considerable space to questions of health care policy. We will be able to address these questions in more depth later in the course, but there is already discussion of health care policy in chapter 1, and of course it was frequently in the news in 2009 and 2010, so I expect that many of you have thought about it enough to have at least a preliminary opinion on the matter.

In that spirit, I’d like you to consider the question of ideal care policy. For example, if you had been an influential economic advisor to the President or to prominent members of Congress in 2009, what policy would you have recommended as being socially best (independent of political constraints)? Explain how your policy compares to the status quo (and perhaps to other alternatives, such as the bill that was eventually signed) in terms of efficiency and in terms of equity.


Assignment 3

Imagine that you are an influential economic advisor to a powerful political faction that has the clout to reshape the tax code on any and/or every level of government. What changes, if any, would you recommend, and perhaps more importantly, why? In other words, I’m asking you to consider how you might design an ideal tax scheme for the USA (in the present day), given no political constraints. I’m hoping for clearly argued, concise, and well-structured essays, which would ideally show that you’ve given some serious, independent thought to the topic. You will probably want to discuss the implications of your proposed changes for both efficiency and equity. Sometimes it helps to raise and honestly address arguments that you might expect others to make against your proposal. If you end up with less than perfect certainty about what the best policy would be, this is okay.


Assignment 4

Supposing (at least for the sake of argument) that carbon emissions cause significant long-run environmental damage, discuss the pros and cons of different possible policies (including the policy of doing nothing) that might be used to respond to this problem. Which would you personally recommend, and why?


Assignment 5

      Your assignment concerns the personal income tax levied by the US federal government. Your task is (1) to discuss the kinds of evidence and reasoning that ought to go into the decision of how to structure this tax, and (2) to suggest the outline of a provisional redesign on your own, in whatever level of detail you feel comfortable with. You should provide clear, strong reasoning for the elements of your proposal in (2), along with some discussion of its possible drawbacks relative to other possible structures. Your changes should be revenue neutral overall; i.e. they should leave the government with approximately the same level of revenue that it receives currently.

      You will want to address the question of which exemptions / deductions / etc. should be allowed, and to what degree. If you like, you may allow payers to deduct savings from income, which could make your tax more of an expenditure tax if the deduction is unlimited. You will also want to address the question of progressivity: should income be taxed at different marginal rates or not? If so, try to give some sort of suggest about what your rate structure should be. Either way, you need to provide clear, detailed reasoning on this question. Overall, you will want to integrate your reasoning in this essay with the material that we’ve covered in class.