LFU:online

The students will learn how to systematically understand the role of the government in market interactions. The course will analyze behavioral reactions to government interventions and incentives for governments in the political decision-making process. The students will improve their ability to conduct normative and positive analyses of some key policy problems and to derive policy recommendations based on state-of-the-art methods in economics.

Public policy influences our everyday decisions in various ways. Based on thorough microeconomic methods, the course discusses important policy issues on the revenue side and on the spending side of the government. The analysis of public revenues focuses on the design of important tax instruments from a normative perspective and contrasts optimal tax design with real-world constraints. The analysis of public expenditure policies puts emphasis on important challenges to an efficient design of government spending. By taking into account incentives for policy-makers generated by the political process the third part of the course applies political economy aspects to current policy problems.

Outline: 1. Public revenues: Taxes on income; taxes on savings and wealth; tax reforms. 2. Public Expenditures: Local public goods; budget deficits; social insurance. 3. Political Economics: Democratic decision-making; conflicts of interest; democracy and public finances.

VU: Final exam (60%); student presentations (30%); active participation (10%)
PS: Final exam (40%); problem sets (50%); active participation (10%)

Gruber, Jonathan, Public Finance and Public Policy, 6th ed., New York: Worth Publishers, Macmillan Learning, 2019.
Hindriks, Jean, Myles, Gareth D., Intermediate Public Economics, MIT Press, 2013.
Further literature (textbook chapters and research articles) will be announced during the semester.

Successful completion of the course “Public Sector Economics” (“Ökonomik des öffentlichen Sektors”) and knowledge of fundamental concepts in game theory (best reply functions, Nash equilibrium, etc.) as well as basic econometric methods is strongly recommended.