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Economics 205: Public Economics Fall 2009 Professor Sara LaLumia Office Hours: Mondays, 6-8 pm Office: 206 Schapiro Hall Wednesdays, 2-3:30 pm Phone: 597-4886 and by appointment E-mail: firstname.lastname@example.org Class: Tuesdays and Fridays, 2:35 – 3:50, 141 Schapiro Hall Course Description This course is concerned with the role of government in the economy. There are three major motivating questions for the course: Under what circumstances should the government intervene in the economy? How should government interventions be designed? What are the effects of government interventions on consumer behavior? We will begin with the rationale for government intervention in the market, discussing externalities and public goods. We will next analyze particular types of government spending, discussing details of education, welfare, and social insurance programs. Finally we will study how the government raises revenue through taxation, and discuss how individuals respond to taxation. Resources Textbook: Public Finance and Public Policy, Second Edition. Jonathan Gruber. Available at Water Street Books. Readings packet: Available in the Makepeace Room of Greylock Hall, open between 9 and 4. Blackboard website: I will post problem sets, solutions, additional readings, etc. on the course website. Teaching assistant: Sarah Ginsberg (Sarah.E.Ginsberg@williams.edu) is the teaching assistant for this course. She will run review sessions and grade problem sets. Office hours: My regular office hours are 6 to 8 on Monday evenings and 2 to 3:30 on Wednesday afternoons. If these times aren’t convenient for you, I am happy to meet at another time. Please email me to set up an appointment. Assignments and Grading Your grade in the course will be based on the following: Problem sets (20%) You will complete four problem sets. Some will require you to use Excel. You may work on problem sets in groups, but each person must turn in his or her own assignment. Policy memos (15%) You will write three persuasive policy memos, in each case arguing for or against a particular proposal. You will choose three out of the following four topics: o Sept 22: Choice between carbon tax and cap-and-trade o Oct 27: Vouchers for elementary education o Nov 6: Private accounts in Social Security o November 17: Extending the Massachusetts health reform to other states (I may modify this topic based on what Congress does with health reform this fall.) On the day you submit your memos, we will have an in-class discussion/debate of the policy. You should come prepared to actively discuss and answer questions about what you have written. In-class exercises (5%) In six class meetings I will give you a short (approximately 10-15 minute) assignment. These may consist of a mathematical problem, short written response, or graphical analysis. These will be graded on a check plus, check, check minus basis. Your lowest score will be dropped. If you are not in class on the day of the exercise, you do not get credit for it. Comparison of academic and popular press writing (5%) In a group of 2-3 students, you will give a 5-minute presentation describing in greater detail an academic paper summarized in the popular press. Everyone in class will have read the popular press account. Your group must meet with me ahead of time to practice your presentation. A list of possible papers will be posted on Blackboard. Policy analysis paper (15%) You will analyze a particular government expenditure program that we have not discussed in class. This can be a U.S. program or a program from another country, and it can be at the federal, state, or local level. You will outline the problem or issue that the program addresses, and evaluate the case for government intervention in this issue. You will describe how the program works. You will analyze the effects of the program on consumer behavior, considering both the effects predicted by economic theory and empirical evidence on how consumers have actually responded. You will submit a draft, receive feedback from me and peer reviewers, give feedback to other students, and incorporate the feedback into your final draft. Feedback will be in the form of a referee report. Due dates for the three components are: o Nov 13: First draft o Nov 24: Referee reports o Dec 4: Final paper I will provide a more detailed description of this assignment later in the semester. Midterm (15%) An exam consisting of mathematical problems and short essay questions will be given during class time on Tuesday, October 20. Final (25%) A cumulative final will be held during the normal final exam period. The date and time will be announced a few weeks into the course. Schedule and Due Dates Tuesday Friday Sept 11: Intro Sept 15: Externalities Sept 18: Externalities, Part II Sept 22: Public Goods Sept 25: Public Goods, Part II Policy Memo 1 Due Problem Set 1 Due Sept 29: Cost-Benefit Analysis Oct 2: Voting Mechanisms Oct 6: Fiscal Federalism and Tiebout Oct 9: Grants Problem Set 2 Due Oct 13: No Class (Reading Period) Oct 16: Kept Open for Mountain Day Oct 20: Midterm Oct 23: Education, Part I Oct 27: Education, Part II Oct 30: Modeling Social Insurance Policy Memo 2 Due Nov 3: Social Security, Part I Nov 6: Social Security, Part II Policy Memo 3 Due Nov 10: Medicare and Medicaid Nov 13: No Class (in exchange for film session Dec 9 or 10) Draft of Policy Analysis Due Nov 17: Health Reform Nov 20: Welfare Policy Memo 4 Due Problem Set 3 Due Nov 24: Tax Incidence Nov 27: No Class (Thanksgiving) Referee Reports Due Dec 1: Deadweight Loss and Optimal Taxation Dec 4: Structure of the Individual Income Tax Final Policy Analysis Due Dec 8: Taxation and Savings Dec 9 or 10: Watch Dec 11: Deficit Finance I.O.U.S.A. Problem Set 4 Due Course Policies Problem sets and writing assignments must be turned in at the beginning of class on the day they are due. Late assignments will only be accepted with my prior approval. I am experimenting with accepting electronic copies of written assignments on Blackboard this semester. You may upload your policy memos and policy analysis paper using the digital dropbox feature. If you choose this option, you must upload assignments before the start of class on the due date. If you prefer you may instead turn in a hard copy. You must turn in a hard copy of problem set solutions. I expect all writing assignments to be your own original work, with appropriate citations of any sources you have consulted. If you have any questions about how the Honor Code applies to particular assignments in this course, please talk to me. I encourage you to take advantage of the Writing Workshop for assistance with policy memos or the longer policy analysis paper. You can stop by their centers in Sawyer or Schow on Sunday through Thursday evenings. Please turn off cell phones before class. Reading List Sept 15: Externalities, Part I Gruber, 5.1-5.3 (pages 120-138) Gruber, chapter 6 (especially section 6.3) Sept 18: Externalities, Part II Gruber, 5.4-5.5 Metcalf, Gilbert E. 2009. “Market-Based Policy Options to Control U.S. Greenhouse Gas Emissions.” Journal of Economic Perspectives 23(2): 5-27. Sept 22: Optimal Provision of Public Goods Gruber, 7.1 (pages 177 – 183) Gruber, 9.1 (pages 225 – 228) Sept 25: Free-Riding and the Nash Equilibrium Level of Public Goods Gruber, 7.2 – 7.4 (pages 183 – 195) Porter, Eduardo. “The Divisions that Tighten the Purse Strings.” New York Times, April 29, 2007. Sept 29: Cost-Benefit Analysis Gruber, chapter 8 Viscusi, W. Kip. 2008. “How to Value a Life.” Journal of Economics and Finance. 32(4): 311-323. Oct 2: Models of Voting Gruber, chapter 9.2-9.3 Leonhardt, David and Catherine Rampell. 2009. “Race, Gender, and Decision Making.” New York Times. May 27. Oct 6: Fiscal Federalism and the Tiebout Model Gruber, 10.1-10.2 Oct 9: Fiscal Federalism and Grants Gruber, 10.3-10.4 Oct 20: Midterm Oct 23: Education, Part I Gruber, 11.1 – 11.3 Barrow, Lisa and Cecilia Elena Rouse. 2008. “School Vouchers: Recent Findings and Unanswered Questions.” 32(3): Economic Perspectives 2-16. Neal, Derek. 2002. “How Vouchers Could Change the Market for Education.” Journal of Economic Perspectives 16(4): 25-44. Oct 27: Education, Part II Gruber, 11.5 Cornwell, Christopher and David B. Mustard. 2006. “Evaluating HOPE-Style Merit Scholarships.” In Innovation in Education, Federal Reserve Bank of Cleveland Conference Proceedings. Maag, Elaine et al. 2007. “Subsidizing Higher Education Through Tax and Spending Programs.” Tax Policy Issues and Options, No. 18. Oct 30: Theory of Social Insurance Gruber, Chapter 12 Francis, David R. 2003. “Auto Insurance and Traffic Fatalities.” NBER Digest. Nov 3: Social Security, Program Overview and Funding Gruber, 13.1, 13.4 Clark, Robert L. 2004. “Social Security Financing: Facts, Fantasies, Foibles, and Follies.” American Economic Review, Papers and Proceedings 94(2): 182-186. Nov 6: Social Security, Private Accounts and Effects on Behavior Gruber, 13.2-13.3 Cogan, John F. and Olivia S. Mitchell. 2003. “Perspectives from the President’s Commission on Social Security Reform.” Journal of Economic Perspectives 17(2): 149- 172. Lazear, Edward P. 2005. “The Virtues of Personal Accounts for Social Security.” Economists’ Voice 2(1): Article 4. Stiglitz, Joseph. 2005. “Securing Social Security for the Future.” Economists’ Voice 2(1): Article 5. Nov 10: No Class (in exchange for film watching on Dec 9 or 10) Nov 13: Medicare and Medicaid Gruber, chapter 15 (you can skip 429-435), 16.1-16.4 Nov 17: Health Reform Note: Readings subject to revision based on what Congress does in fall 2009 Gruber, 16.6 Gruber, Jonathan. 2008. “Incremental Universalism for the United States: The States Move First?” Journal of Economic Perspectives 22(4): 51-68. Nov 20: Welfare Gruber, Chapter 17 Nov 24: Tax Incidence Gruber, 19.1-19.2 “Study: Toll Transponders Hide Cost of Tolling.” Dec 1: Deadweight Loss and Optimal Taxation Gruber, chapter 20 and 21.1-21.2 Dec 4: Structure of the Individual Income Tax Gruber, chapter 18 Foser, Jamison. 2009. “Does ABC News Understand How Income Tax Works?” Media Matters. March 3. Dec 8: Taxation and Savings Gruber, chapter 22 and 25.3 Gray, Tim. 2005. “Making Good Choices.” Trust Magazine Winter: 11-16. Evening of Dec 9 or 10 (Times TBA): Watch parts of “I.O.U.S.A.” Reuters describes this film on the national debt as “to the U.S. economy what ‘An Inconvenient Truth’ was to the environment.” Dec 11: Deficit Finance Rosen, Harvey. 2008 “Deficit Finance.” Chapter 20 from Public Finance.
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