Syllabus

Economics 2480

Public Economics

Spring 2008

Basic Information

Prerequisite: EC2030, EC2040, EC2050, EC2060

Course website: http://www.econ.brown.edu/fac/Brian_Knight/eco248Syllabus.htm

Professor Information

Professor: Brian G. Knight

Office: Robinson 102C

Office phone: 863-1584

Office hours: 10:00am-noon Tuesdays

E-mail: Brian_Knight@brown.edu

Scheduling

Meets Tue/Thu 1:00-2:20pm, 301 Robinson

Textbook

Optional: Cornes and Sandler, The Theory of Externalities, Public Goods and Club Goods, Cambridge University Press, Second Edition, 1996.

Optional: Handbook of Public Economics, Volumes 3 and 4, Feldstein and Auerbach (eds.), Elsevier Science, 2002.

Homework

There will be several homework assignments. Homework will be distributed in class one week prior to the due date. Homework is due at the beginning of class on the due date. I plan to distribute the answer key soon after the due date and thus will not accept late homework. One of the homework assignments will be in the form of a mock referee report, described more fully below.

Mock Referee Reports

At some point during the semester, you will be assigned to provide a mock referee report of a widely circulated working paper, such as one in the National Bureau of Economic Research (NBER) Working Paper Series. Note that this is only a learning exercise and that your comments will in no way affect the publication prospects of the working paper. Your report should consist of a mock letter to the editor of a leading field journal, such as the Journal of Public Economics, recommending publication or rejection, and an mock report for the paper’s authors. In preparing your remarks, please keep in mind that I may forward your comments to the authors.

Midterm

A midterm will be given on Thursday, March 20.

Paper requirement

A paper will be due on Friday, May 2. Additional details on the paper requirement will be provided at a later date. A one-page proposal will be due on Thursday, March 13.

Workload

There will be three to four assigned required readings per week. Depending upon the student’s background, each reading should take about two hours. Thus, total weekly reading will range between six and eight hours. In addition, students should plan on spending at least three hours each on the four homework assignments.

Weights for Course Grades

Homework 20%

Midterm 40%

Paper 40%

Course Description

This course studies original research in public economics, broadly defined as the examination of the role of government in private economies. The research covered will be a combination of applied microeconomic theory, experimental studies, and econometric analyses. Topics include public goods, redistribution of income, optimal taxation, political economy, local public finance, and fiscal federalism.

Course Outline

Below are topics by week:

Week 1: Introduction and Public Goods

Week 2: Public Goods

Week 3: Political Economy: Endogenous Borders

Week 4: Political Economy: Redistricting

Week 5: Political Economy: Legislative Bargaining and Elections

Week 6: Political Economy: Campaign Finance and Lobbying

Week 7: Political Economy: Role of the Media

Week 8: Local Public Goods

Week 9: Fiscal Federalism

Week 10: Optimal Taxation – Theory

Week 11: Optimal Taxation – Applications

Week 12: Student paper presentations

Week 13: Student paper presentations

Reading List – ECO248

(* denotes required readings, others should be considered optional)

1/2. Public Goods: Pareto efficient and private provision

* Cornes and Sandler, Chapters 6, 7.

Samuelson, Paul A., “The Pure Theory of Public Expenditure,” Review of Economics and Statistics, Nov. 1954, 387-389.

Samuelson, Paul A., “Diagrammatic Exposition of a Theory of Public Expenditures,” Review of Economics and Statistics, 1955, 350--356.

Bergstrom, Theodore, Laurence Blume and Hal Varian, “On the Private Provision of Public Goods,” Journal of Public Economics, 1986, v 29, 25--49.

Andreoni, James, “Privately Provided Public Goods in a Large Economy: The Limits of Altruism,” Journal of Public Economics, February 1988, v 35, 57--73.

Andreoni, James, “Giving with Impure Altruism: Applications to Charity and Ricardian Equivalence,” Journal of Political Economy, December, 1989, 1447--1458.

Andreoni, James, “Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving,” Economic Journal, 100, 1990.

Andreoni, James and Ted Bergstrom, “Do Government Subsidies Increase the Private Supply of Public Goods?,” Public Choice, v. 88, 1996, 295-308.

Andreoni, James, “Towards a Theory of Charitable Fundraising”, The Journal of Political Economy, Vol. 106, No. 6. (Dec., 1998), pp. 1186-1213.

Bliss, C. and Barry Nalebuff, “Dragon Slaying and Ballroom Dancing: The Private Supply of a Public Good,” Journal of Public Economics, 27, 1984, 772--87.

Bilodeau, Marc and Al Slivinski, “Toilet Cleaning and Department Chairing: Volunteering a Public Service,” Journal of Public Economics, February 1996, 299--308

Isaac, Mark and James Walker, “Group Size Hypothesis of Public Goods Provision: Experimental Evidence,” Quarterly Journal of Economics, 1988.

Andreoni, James, “Why Free Ride? Strategies and Learning in Public Goods Experiments,” Journal of Public Economics, December 1988.

Andreoni, James, “An Experimental Test of the Public Goods Crowding Out Hypothesis,” American Economic Review, December 1993.

Andreoni, James, “Cooperation in Public Goods Experiments: Kindness or Confusion?,” American Economic Review, September 1995, 85, 891--904.

Palfrey, Thomas R. and Jeffrey E. Prisbey, “Anomalous Behavior in Public Goods Experiments: How Much and Why?,” American Economic Review, v. 87(5), 829--846.

Randolph, William, “Dynamic Income, Progressive Taxes, and the Timing of Charitable Contributions,'' Journal of Political Economy, August 1995, 103, 709--738.

Kingma, Bruce, “An Accurate Measure of the Crowd-out Effect, Income Effect, and Price Effect for Charitable Contributions,” Journal of Political Economy, October 1989.

Payne, Abigail, , “Does the Government Crowd-Out Private Donations? New Evidence from a Sample of Non-Profit Firms,” Journal of Public Economics, v.69 (3), 1998, 323--345.

Reilly, David and John List, “The Effects of Seed Money and Refunds on Charitable Giving: Experimental Evidence from a University Capital Campaign, Journal of Political Economy.

Berry, Steven T. and Joel Waldfogel, “Public Radio in the United States: Does it Correct Market Failure or Cannibalize Commercial Stations?,” Journal of Public Economics, v.71, February 1999, 189—211.

* Andreoni, James and Abagail Payne, “Do Government Grants to Private Charities Crowd Out Giving or Fundraising?" American Economic Review, 93(3), June 2003, 792-812.

Hines, James and Thaler, Richard, “Anomolies: The Flypaper Effect,” Journal of Economic Perspectives, Fall 1995, 9, 217--227.

* Knight, Brian, “Endogenous Federal Grants and Crowd-out of State Government Spending: Theory and Evidence from the Federal Highway Aid Program,'' American Economic Review, 92(1), 2002.

3. Political Economy: Endogenous Borders

* Alesina and Spoalore, “On the Size and Number of Nations”, Quarterly Journal of Economics, 1997.

* Alesina, Baqir, and Hoxby, “Political Jurisdictions in Heterogenous Communities”, Quarterly Journal of Economics, 2003.

* Brasington, “Joint Provision of Public Goods: The Consolidation of School Districts”, Journal of Public Economics, 1999.

* Knight, Brian and Nora Gordon, “The Causes of Political Integration: An Application to School Districts”, working paper, 2006.

4. Political Economy: Redistricting

King, G., “Representation through Legislative Redistricting: A Stochastic Model" American Journal of Political Science, 1989.

Gelman, A. and G. “Enhancing Democracy through Legislative Redistricting”, American Political Science Review, 1994.

Epstein, D and S. O”Halloran, “The 45% Solution: Racial Gerrymandering and Representative Democracy”, mimeo, Columbia University, 2003.

Cameron, C., D. Epstein, D and S. O”Halloran, “Do Majority-Minority Districts Maximize Substantive Black Representation in Congress?”, American Political Science Review, 1996.

* Coate, S. and B. Knight, “Socially Optimal Districting: A Theoretical and Empirical Investigation”, Quarterly Journal of Economics, 2007.

* Besley, Tim and Ian Preston, "Electoral Bias and Policy Choice: Theory and Evidence", Quarterly Journal of Economics, 2007

5. Political Economy: Elections and Legislative Bargaining

* Besley, T. and S. Coate, “An Economic Model of Representative Democracy”, Quarterly Journal of Economics, 1997.

* Lee, D., E. Moretti, and M. Butler, “Do Voters Affect or Elect Policies? Evidence from the U.S. House”, Quarterly Journal of Economics, 2004.

* Knight, B and N. Schiff, “Momentum and Social Learning in Presidential Primaries”, NBER working paper 13637.

* Baron, D. and J. Ferejohn, “Bargaining in Legislatures”, American Political Science Review, 1989.

* Knight, B. “Estimating the Value of Proposal Power”, American Economic Review, December 2005.

* Knight, B. “Legislative Representation, Bargaining Power, and the Distribution of Federal Funds”, forthcoming, Economic Journal.

6. Political Economy: Campaign Finance and Lobbying

* Ansolobehere, Stephen and John M. de Figueiredo and James M. Snyder. “Why is There So Little Money in U.S. Politics”, NBER working paper 9409.

* Coate, Stephen, “Pareto Improving Campaign Finance Policy” American Economic Review, Vol. 94, No. 3, June 2004, 628-655

* De Figueiredo, J and B. Silverman. “Academic Earmarks and the Returns to Lobbying”. NBER working paper 9064.

* Knight, Brian, “Are Policy Platforms Capitalized into Equity Prices?”, Journal of Public Economics, 2006.

7. Political Economy: Role of the Media

Stromberg, Mass Media Competition, Political Competition, and Public Policy, forthcoming, Review of Economic Studies

Baron, “Persistent Media Bias”, mimeo, Stanford University.

Besley, T. and R. Burgess, “The Political Economy of Government Responsiveness”, Quarterly Journal of Economics, November 2002, 117(4), 1415-1452.

* Stromberg, David, “Radio's Impact on Public Spending, “, Quarterly Journal of Economics, 2004.

Waldfogel, J, and L. George, “Does the New York Times Spread Ignorance and Apathy”, forthcoming, American Economic Review.

* Mullainathan, Sendhil and Andrei Shleifer, “The Market for News”, American Economic Review, September 2005.

* Gentzkow, Matthew and Jesse Shapiro, “Media Bias and Reputation”, Journal of Political Economy, 2006.

* Gentzkow, Matthew and Jesse Shapiro, “What Drives Media Slant? Evidence from U.S. Daily Newspapers”, NBER working paper 12707.

* Groseclose, T. and J. Milyo, “A Measure of Media Bias”, Quarterly Journal of Economics, November 2005.

8. Local Public Finance

Cornes and Sandler, Chapter 11

Tiebout, C., “A Pure Theory of Local Public Expenditures,” Journal of Political Economy, 1956, 416--424.

Bewely, T., “A Critique of Tiebout's Theory of Local Public Expenditures,” Econometrica, 1982, 713--737.

* Epple, Dennis, and Holger Sieg, “Estimating Equilibrium Models of Local Jurisdictions,” Journal of Political Economy, 1999, 107(4), 645-681.

* Bayer, P. and F. Ferreira, and R. McMillan, “A Unified Framework for Measuring Preferences for School Quality”, Journal of Political Economy, 2007.

* Hoxby, Caroline M. “Does Competition Among Schools Benefit Students or Taxpayers?” American Economic Review, December 2000, 1209-1238.

* Urquiola, M., “Does School Choice Lead to Sorting? Evidence from Tiebout Variation”, American Economic Review, September 2005.

Case, Anne C., Rosen, Harvey S., and Hines, James R., Jr., “Budget Spillovers and Fiscal Policy Interdependence: Evidence from the States”, Journal of Public Economics, vol 52(3), October 1993, 285-307.

Nechyba, Tom, “Local Property and State Income Taxes: The Role of Interjurisdictional Competition and Collusion,” Journal of Political Economy, v.105, 1997, 351--384.

Besley, Timothy and Anne Case, “Incumbent Behavior: Vote Seeking, Tax Setting, and Yardstick Competition”, American Economic Review, 1995, 85(1), 25-45.

Oates, Wallace E., and Robert M. Schwab, “Economic Competition Among Jurisdictions: Efficiency Enhancing or Distortion Inducing?” Journal of Public Economics, v 25, 1988, 333--354.

9. Fiscal Federalism

* Strumpf, Koleman and Felix Oberholzer-Gee, “Endogenous Policy Decentralization: Testing the Central Tenet of Economic Federalism”, Journal of Political Economy, 2002. 110: 1-36.

* Besley, T. and S. Coate, “Centralized Versus Decentralized Provision of Local Public Goods: A Political Economy Analysis”, Journal of Public Economics, 2003..

Moffitt, Robert, “The Effects of Grants-In-Aid on State and Local Expenditures: The Case of AFDC,” Journal of Public Economics, Vol. 23, 1984, 279--306.

* Delrossi, Alison and Robert Inman, “Changing the Price of Pork: The Impact of Local Cost Sharing on Legislators’ Demands for Distributive Public Goods. Journal of Public Economics, 1999, 71, pp. 247-273

* Knight, Brian, “Parochial Interests and the Centralized Provision of Local Public Goods: Evidence from Congressional Voting on Transportation Projects”, Journal of Public Economics.

Inman, Robert and Daniel Rubinfeld, “Rethinking Federalism” Journal of Economic Perspectives, 11, 1997.

Oates, Wallace, An Essay on Fiscal Federalism, Journal of Economic Literature, 37, 1999.

Persson, Torsten and Guido Tabellini, “Federal Fiscal Constitutions: Risk Sharing and Moral Hazard”, Econometrica, 64, 1996.

Persson, Torsten and Guido Tabellini, “Federal Fiscal Constitutions: Risk Sharing and Redistribution”, Journal of Political Economy, 104, 1996.

10. Optimal Taxation: Theory

* Auerbach, Alan and James R. Hines, “Taxation and Economic Efficiency” in Handbook of Public Economics.

Baumol and Bradford, “Optimal Departures From Marginal Cost Pricing,” American Economic Review, 1970.

Diamond, P. A., and J. A. Mirrlees, “Optimal Taxation and Public Production, I & II,” American Economic Review, 1971, 8--27 and 261--278.

Mirrlees, J. A., “An Exploration of the Theory of Optimal Income Taxation,” Review of Economic Studies, 1971, 175--208.

Stiglitz, J. E., “Self-Selection and Pareto Efficient Taxation,” Journal of Public Economics, 1982, 213--240.

Stiglitz, J. E., “Utilitarianism and Horizontal Equity: The Case for Random Taxation,” Journal of Public Economics, 1976.

Varian, Hal R., “Redistributive Taxation as Social Insurance,” Journal of Public Economics, 1980, 49--68.

Slemrod, Joel, S. Yitzhaki and J. Mayshar, “The Optimal Two-bracket Linear Income Tax,” Journal of Public Economics, 1994, 53, 269--290.

Diamond, Peter, “Optimal Income Taxation: An Example with a U-Shaped Pattern of Optimal Marginal Tax Rates,” American Economic Review, 1998, v. 88 (1), 83--95.

Ballard, Charles L. and Don Fullerton, “Distortionary Taxes and the Provision of Public Goods,” Journal of Economic Perspectives, Summer 1992, 117--131.

11. Optimal Taxation: Applications

Saez, Emmanuel, “Using Elasticities to Derive Optimal Income Tax Rates,” MIT working paper, 1998.

* Gruber, Jon and Emmanuel Saez, “The Elasticity of Taxable Income: Evidence and Implications”, NBER working paper 7512.

* Feldstein, Martin, “The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act,” Journal of Political Economy, 1995, v. 103 (3), 551--572.

* Goolsbee, Austan, “What Happens When You Tax the Rich? Evidence from Executive Compensation” Journal of Political Economy, April 2000, v. 108, iss. 2, pp. 352-78.

Bernheim, B. and B. Douglas, “Taxation and Savings”, in Handbook of Public Economics.

Burman, L. and W. Randolph, “Distinguishing Permanent from Transitory Effects of Capital Gains Tax Changes: New Evidence from Micro Data”, American Economic Review, 1995.

* Venti, S and D. Wise, “Have IRAs Increased U.S. Savings? Evidence from Consumer Expenditure Surveys,” Quarterly Journal of Economics, August 1990.

* Gale, W and J. Scholz, “IRAs and Household Savings” American Economic Review, December 1994.