Public Finance

A Normative Theory

4th Edition - January 7, 2022
Author: Richard W. Tresch
Language: English
Paperback ISBN:
9 7 8 - 0 - 1 2 - 8 2 2 8 6 4 - 7
eBook ISBN:
9 7 8 - 0 - 3 2 3 - 9 8 4 1 5 - 7

Public Finance: A Normative Theory, Fourth Edition provides a classic text on the normative theory of government policy. This valuable and accessible resource covers the welfar… Read more

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Public Finance: A Normative Theory, Fourth Edition provides a classic text on the normative theory of government policy. This valuable and accessible resource covers the welfare aspects of public economics, with considerable coverage of European examples. The work presents detailed and comprehensive coverage of theoretical literature, empirical work, environmental issues, social insurance, behavioral economics and international tax issues. The book is organized logically, written in an engaging manner, and is both sufficiently rigid for use by those with PhDs in math and accessible to students less well trained in math.

Cover image
Title page
Table of Contents
Copyright
Preface
Part I. Introduction: The Content and Methodology of Public Sector Theory
Chapter 1. Introduction to Normative Public Sector Theory
The Fundamental Normative Questions
Government Expenditure Theory: Philosophical Underpinnings
Government Expenditure Theory and Market Failure
The Government Sector in the United States
The Theory of Taxation
Fiscal Federalism
The Theory of Public Choice
Behavioral Public Finance
Summary
Chapter 2. A General Equilibrium Model for Public Sector Analysis
A Baseline General Equilibrium Model
Efficiency: The Pareto Optimal Conditions
Equity: The Social Welfare Function and the Optimal Distribution of Income
Maximizing Social Welfare
Policy Implications and Conclusions
Chapter 3. First-Best and Second-Best Analyses and the Political Economy of Public Sector Economics
Lump-Sum Redistributions and Public Sector Theory
First-Best Analysis
Second-Best Analysis
Similarities Between First-Best and Second-Best Analyses
The Political Economy of the Social Welfare Function
Conclusion
Part II. The Theory of Public Expenditures and Taxation—First-Best Analysis
Chapter 4. The Social Welfare Function in Policy Analysis
Social Welfare and the Distribution of Income: The Atkinson Framework
Social Welfare and Consumption: The Jorgenson Analysis
Social Welfare and Social Mobility
Chapter 5. The Problem of Externalities—An Overview
Policy-Relevant Externalities
The Analysis of Externalities: Modeling Preliminaries
Chapter 6. Consumption Externalities
How Bad Can Externalities Be?
The Worst of All Worlds—All Goods (Factors) Are Pure Public Goods (Factors)
The Existence of at Least One Pure Private Good
Nonexclusive Goods—The Samuelson Model
Aggregate Externalities
Chapter 7. Production Externalities
The Condensed Model for Production Externalities
Aggregate Production Externalities
U.S. Antipollution Policy: The CAC Approach
Concluding Comments: The Problem of Nonconvex Production Possibilities
Chapter 8. An Application of Externality Theory: Global Warming
Consumption–Production Externalities
Legislating Pollution Standards
Defensive Antipollution Strategies
The Kyoto Protocol, the Copenhagen Accord, and the Paris Climate Agreement
Long-Lived Externalities
Additional Issues
Chapter 9. The Theory of Decreasing Cost Production
Decreasing Cost in General Equilibrium Analysis
Reflections on U.S. Policy Regarding Decreasing Cost Services: The Public Interest in Equity and Efficiency
Appendix: Returns to Scale, Homogeneity, and Decreasing Cost
Chapter 10. The First-Best Theory of Taxation and Transfers
Public Choice and Pareto-Optimal Redistribution
Altruism, Free Riding, and Crowding Out of Private Charity
Other Motivations for Redistributive Transfers
Chapter 11. Applying First-Best Principles of Taxation—What to Tax and How
Designing Broad-Based Taxes: The Economic Objectives
Ability to Pay: Theoretical Considerations
Horizontal Equity
Vertical Equity
Reflections on the Haig–Simons Criterion in Practice: The Federal Personal Income Tax
The Inflationary Bias Against Income From Capital
Taxing Realized Gains: Auerbach’s Retrospective Taxation Proposal
The Taxation of Human Capital
Summary
Part III. The Theory of Public Expenditures and Taxation: Second-Best Analysis
Chapter 12. Introduction to Second-Best Analysis
A Brief History of Second-Best Theory
Philosophical and Methodological Underpinnings
Preview of Part III
Chapter 13. The Second-Best Theory of Taxation in One-Consumer Economies With Linear Production Technology
General Equilibrium Price Models
The Measurement of Loss From Distorting Taxes
The Optimal Pattern of Commodity Taxes
Substitutions Among Taxes: Implications for Welfare Loss
Chapter 14. The Second-Best Theory of Taxation With General Production Technologies and Many Consumers
A One-Consumer Economy With General Technology
Many-Person Economies: Fixed Producer Prices
Many-Person Economy With General Technology
The Social Welfare Implications of Any Given Change in Taxes
Chapter 15. Taxation Under Asymmetric Information
Lump-Sum Redistributions and Private Information
Redistribution Through Commodity Taxation
Optimal Taxation, Private Information, and Self-Selection Constraints
Optimal Income Taxation
Tax Evasion
Concluding Remarks
Chapter 16. The Theory and Measurement of Tax Incidence
Tax Incidence: A Partial Equilibrium Analysis
First-Best Theory, Second-Best Theory, and Tax Incidence
Methodological Differences in the Measurement of Tax Incidence
Theoretical Measures of Tax Incidence
The Equivalence of General Taxes
Measuring Tax Incidence: A Many-Consumer Economy
The Harberger Analysis
Important Modifications of the Harberger Model
Chapter 17. Expenditure Incidence and Economywide Incidence Studies
The Incidence of Government Transfer Payments
Tax and Expenditure Incidence With Decreasing-Cost Services
Samuelsonian Nonexclusive Goods
Economywide Incidence Studies
The Sources and Uses Approach
Computable General Equilibrium Models of Tax Incidence
Dynamic Tax Incidence
Chapter 18. Tax Reform: The Tax Base and Tax Rates
Tax Reform and Tax Theory
Reforming the Tax Base
Reforming the Personal Income Tax Rates
Chapter 19. Transfer Payments and Private Information
First-Best Insights
Cash Transfers: Broad-Based or Targeted?
Private Information and In-Kind Transfers
Chapter 20. Social Insurance: Medical Care
The Demand for Insurance
Without Insurance
With Insurance
Private or Asymmetric Information
Moral Hazard
The Competitive Outcome
The Public Policy Response
Ex Post Moral Hazard
Deductibles and Copayments
The Value of Access
Adverse Selection
Ex Post Versus Ex Ante Efficiency
The Nature of Adverse Selection
Advantageous Selection
A Two-Policy Model
Is an Equilibrium Possible?
An Information-Enhanced R/S Model
Policy Response to Adverse Selection
U.S. Policies
Medicare and Medicaid
Patient Protection and Affordable Care Act
Chapter 21. Social Insurance: Social Security
The U.S. Social Security System
Social Security as Social Insurance
The Macroeconomic Effects of Social Security
Social Security and Saving
The Structure of the Economy: Consumption, Production, and Market Clearance
Concluding Observations
Chapter 22. Externalities in a Second-Best Environment
The Second-Best Allocation of Samuelsonian Nonexclusive Goods
The Coase Theorem, Bargaining, and Private Information
Chapter 23. Decreasing Costs and the Theory of the Second Best—The Boiteux Problem
The Boiteux Problem: The Multiproduct Decreasing-Cost Firm
Constrained Government Agencies
Chapter 24. General Production Rules in a Second-Best Environment
The Diamond–Mirrlees Problem: One-Consumer Economy
Production Decisions With Nonoptimal Taxes
Second-Best Production Rules When Equity Matters
Concluding Comments
Chapter 25. Behavioral Public Sector Economics
The Behavioral Anomalies
Prospect Theory: The Rejection of Expected Utility Maximization
Present-Biased Preferences: Self-Control Issues
Social Preferences
Framing Effects or Context Dependence
Mainstream Reactions
Positive and Normative Public Sector Economics
Prospect Theory
Applying Prospect Theory
Nudges and Standard Policy Prescriptions
Standard Agents Only
Behavioral Agents Only
A Mixture of Standard and Behavioral Agents
Neoclassical Errors When Behavioral Anomalies Occur
Can Mainstream and Behavioral Economic Theory Be Reconciled?
Refinements
Behavioral Public Finance Following Bernheim/Rangel
Reworking Optimal Tax Theory
A Final Word in Support of Behavioral Economics
Part IV. Fiscal Federalism and International Public Finance
Chapter 26. Optimal Federalism: Sorting the Functions of Government Within the Fiscal Hierarchy
The Potential for Incompatibilities and Destructive Competition
Sorting the Functions of Government Within the Fiscal Hierarchy
Optimal Federalism and the Distribution Function
Chapter 27. Optimal Federalism: The Sorting of People Within the Fiscal Hierarchy
The Modeling Dimensions
Jurisdiction Formation in Accordance With the Theory of Clubs
Fixed Communities and Housing Sites: Adding the Housing Market
Anything Is Possible
Mobility and Redistribution
Chapter 28. The Role of Grants-in-Aid in a Federalist System of Governments
Optimal Federalism and Grants-in-Aid: Normative Analysis
Alternative Design Criteria
Estimating the Demand for State and Local Public Services
The Response to Grants-in-Aid
Chapter 29. International Public Finance
The Taxation of Mobile Capital
Summary
Multinational Enterprises
A Destination-Based Cash Flow Tax
Concluding Observations
Index

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Public Finance

A Normative Theory

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Richard W. Tresch