ECONOMICS OF GOVERNMENT

 

Nipoli Kamdar, Ph.d.

Office Hours: MWF 2:30 p.m. - 3:30 p.m.
T 9:30 a.m. - 11 a.m., 2:00p.m-3:30p.m.

Additional meetings may be scheduled by appointment.

Office: CGC 416 Phone No: x-7441

E-mail: nkamdar@trinity.edu

TEXTS Public Finance: A Contemporary Application of Theory to Policy (5th Edition), by David N. Hyman. Readings on reserve at the library In addition you should keep apprised of current issues. Good sources of information include the Wall Street Journal, New York Times, Washington Post and The Economist

    This course will focus on a microeconomic analysis of government tax and expenditure policies and their impact on resource allocation and the distribution of income. You will learn to critically analyze existing government programs and determine whether they serve their intended purpose. You will also be expected to recommend improvements to existing policies and/or suggest alternate means of achieving a given public policy goal.

    We will begin by asking, "What is the appropriate role, if any, for 'government' in a modern market-oriented economy?" As we examine the rationale for the existence of a public sector we will pay close attention to externalities and public goods. Of course, demand cannot stand alone -- an analysis of the supply of public goods must follow. A major emphasis will be put on public choice theory - i.e., the application of economic methodology to the analysis of political markets. Here we will study how individuals attempt to reveal and satisfy their preferences for public goods through an aggregate decision-making process such as voting. We will also discuss the motivations and actions of legislators, bureaucrats and special interest groups. We will then use our understanding of the theory of public expenditures to critically evaluate specific government programs in the U.S., such as public spending on education, welfare and health care.

    Finally we must address how government expenditures are financed. You are expected to learn the principles of taxation and analyze tax structure and tax policies in the U.S.. We will focus on the personal income tax as it is a principal source of revenue for the federal government, but we may also examine other taxes and tax reform proposals if time permits.

COURSE REQUIREMENTS AND POLICIES

1. Your grade in this course will be based on two midterm examinations, a comprehensive final examination, homework assignments and class participation. The schedule of exams and assignments is as follows:

2. In addition to the assignments listed above you may be assigned homework that will not be graded. It is in your interest to complete these assignments, however, as they are designed to promote a better understanding of the subject and to help you prepare for the exams.

3. You have the option of working in pairs or in groups of three, and submitting joint assignments except when expressly prohibited from doing so. You may not consult your peers during exams. If you choose to submit a joint term paper/project, please notify me in advance.

4. Assignments will be a mix of short essays and problems. They must be on my desk on the date due, within the first ten minutes of class. Assignments that are turned in later than that, on the date due, will be assessed a penalty of 1 point. Other late assignments will receive a penalty of 2 points per day.

5. Essay answers should be typed; other HW assignments may be typed or handwritten. All graphs must be neatly and clearly labeled. If you use multiple sheets, they must be stapled together. Loose sheets will be accepted with a penalty of 2 points.

6. If you have a conflict with any of the scheduled exams you must notify me at least a week in advance in order to be "accommodated." "Accommodation" is at my discretion and implies that I may offer you a choice between completing the exam at an earlier date or transferring the weight of the exam to the final.

                   7. There will be no makeup opportunities for missed exams. Under extenuating (and appropriately                      documented) circumstances, and at the discretion of the instructor, the weight of the missed exam will be                      transferred to the final.

8. Attendance at all class meetings is expected. Your class participation grades will be based on both the quality and the quantity of your class participation. It is in your interest to recognize how difficult it is to participate when you are not present. Further, you are expected to come prepared to all class meetings -- so you must keep up with the readings. Informed discussion is a vital component of the active learning process.

9. As a courtesy to your classmates please ensure that you generally come to class on time. On the rare occasions that you are late or should you need to leave early, please enter and exit the class with as little disruption as possible.

10. Students are expected to maintain the highest standards of academic integrity. Cheating in any form will be severely penalized. The minimum penalty is a zero on the assignment/exam in question. In addition, the incident will be reported as provided in the University's Policy on Academic Integrity. The student may also receive an "F" on the course.

11. I am very interested in your comments, complaints and/or suggestions as it will help me offer improved versions of the course. Please feel free to talk with me during my office hours or leave written comments in my mailbox. Remember that it is in your interest to bring your concerns to me during the semester rather than wait for the end of semester evaluation.

12. Requests for a change of grade must be in writing and must specifically identify where and why you disagree with my assessment of your work. I will take a few days to review your request and then meet with you during office hours to discuss it. I reserve the right to make additional corrections if necessary.

 

            TERM PROJECT

1. The objective of this assignment is to give you an opportunity to "get your hands dirty" -- i.e., to apply what you have learned in this course to an actual public policy question that interests you. Your paper/presentation should be in the form of a policy recommendation, for example, to a member of the House Ways and Means Committee or the President's Economic Security Council.

2. The paper/presentation should be submitted in three stages. You should identify a policy question, find at least one related newspaper or magazine article published within the past year and discuss your topic with me by 10/13/99. A penalty of a point per day will be assessed thereafter. (Note that you are more likely to succeed if you chose a relatively narrow topic.)

3. You must submit a brief (a maximum of two typed double-spaced pages) proposal/preview of your paper on 10/27/99. The proposal will be worth 10 points. This should clearly identify the problem you would like to study and should also contain your initial educated guesses on how to solve the problem. Late submissions will be penalized a point per day.

4. Your paper/presentation should begin with a clear statement of the problem you're addressing, explaining why we should care about the issue and identifying the flaws in existing policy. This should be followed by your recommendations, the rationale for the changes you propose and their costs and benefits. You should also address the drawbacks of your proposals, both real and perceived and suggest some alternatives or modifications along with an analysis of the net benefits/costs. You may also discuss other factors that influenced your recommendations. For example, you may discuss the role of special interests or the press or the self-interest of the politician you're addressing.

5. The final version of your paper should be submitted to me in triplicate on or before 11/24/99. Late papers will be accepted with a penalty of 2 points per day. I will keep one copy of the report and the other two copies will be placed on reserve at the library for the benefit of other members of the class. Presentations will be scheduled for the months of November and December. Further details will be provided by the last week of October.

6.  The term paper should not exceed 10 typed, double-spaced pages (including all references, tables, charts and endnotes/footnotes). Margins should be an inch wide on all sides. Please use a 12-point font and do not right justify. Presentations should be between 15-20 minutes long. Presenters should provide members of the class with a one-page typed list of the highlights/main findings of the research. This may be done bullet-style, if preferred.

7.  Your grade will depend critically on the economic analysis of the issue under consideration. Your grade will also depend in part on the quality of your writing and/or the presentation of ideas (i.e. packaging). Clarity of expression and internal structure (subject headings, transition statements) are objectives you should keep in mind as you write. Length will not be its own reward.

8.  I suggest some possible topics below, but you are strongly encouraged to choose your own topic. A word of caution however – you are more likely to succeed with a topic that is relatively narrow (e.g., the desirability of eliminating the preferential tax treatment of employer provided health insurance) rather than a broad topic (such as the need for reforming the health care or welfare system).

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The readings marked with a * are required. During the semester additional readings will be assigned. Other listed readings should be helpful if you are especially interested in an area.

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*      Hyman, Chps 1 & 2

*     Clinton, W. "What Good is Government..." in Newsweek, April 10, 1995

*     Gingrich, N. "..And Can We Make it Better?" in Newsweek, April 10, 1995

*     Friedman, M. Capitalism and Freedom, Chp. 2, " The Role of Government in a Free Society."

        Samuelson, R. "Great Expectations" in Newsweek, January 8, 1996

*     Wessel, David "Selling Entire Stock! Capitalism is Giddy with Triumph: Is it possible to overdo it?

      Free to Grow,@ WSJ, September 3, 1996

*     Hyman, Chp. 3

*     Coase, R. "The Problem of Social Cost," in Mansfield's Microeconomics, Selected Readings.

        Cooter, Robert "Mongolia: Avoiding Tragedy in the World's Largest Commons" Working Paper 94-6,
        Center for the Study of Law and Society, U.C. Berkeley.

*      Hardin, G. "The Tragedy of the Commons" in Readings in Public Sector Economics.

        Miller R., D. Benjamin and D.North, "Greenhouse Economics" in The Economics of Public Issues.

*     Solomon, Caleb "Clearing the Air," WSJ, March 29, 1993.

        Tregarthen, T. "How Property Rights Tamed the West," The Margin, March/April 1991.

III. Public Goods (Week of 9/13)

*     Hyman, Chp. 4

        Cunningham, Diane "An Economic Case for Funding AIDS Research," The Margin, Fall 1991

        Klein, D. "The Voluntary Provision of Public Goods? The Turnpike Companies of Early America" in Economic          Inquiry, Vol. 28, October 1990.

        Nagusky, B. "Turnpike alternatives show promising early results"

IV. Public Choice and the Political Process (Week of 9/20, 9/27 and 10/4)

*     Hyman, Chp 5

       Calmes, J. APriming the Pump,@ WSJ, 8/18/97

       Hunt, A. ATheBogus Case Against Ending Soft Money,@ WSJ, 8/21/97

*     Johnson, D.,"Voting, Rational Abstention and Rational Ignorance," in Public Choice,: An Introduction to the New          Political Economy, Bristlecone Books, Mountain View, CA, 1991.

*     Johnson, D.,"Political Parties," in Public Choice,: An Introduction to the New Political Economy, Bristlecone Books,         Mountain View, CA, 1991.

       Kelly, B. "A Tale of Piggery" in Newsweek, April 92.

*     Kelman, S. " 'Public Choice' and Public Spirit," Public Interest, 1987.

*     Marks, S. "Influences on Legislator Voting: Theory and An Example" in Readings, Issues and Problems in Public          Finance.

       McCarthy, M. "Inside the Beer Industry's Political Machine, WSJ, "8/18/97.

       Nomani, A. "End of Ice Age Has Congress Staffers Carrying Their Own," WSJ, 8/5/97

       Sawyer, K. "A Paradox of Majority Politics", Washington Post, Fall 1995.

V.     Cost-Benefit Analysis and Government Investments (Week of 10/11)

*     Hyman, Chp. 6

*           Hyman, Chp. 9

            Fineman, H. "Bill’s Social Security Schmooze," Newsweek, 4/20/98.

            Pinera, J. "The Success of Chile’s Privatized Social Security," Cato Policy Report, July/August 1995.

Bolick, C. "School Choice Can Broaden the GOP’s Base," The Wall Street Journal, 6/3/98

------------ "School Choice and the Supreme Court," The Wall Street Journal, 6/15/98

Cisneros-Lunsford, A. "CEO to Offer $50 million to Students," San Antonio Express News, 4/22/98

--------------------------- "871 tuition vouchers given," San Antonio Express News, 8/15/98

Friedman, M. and R., Free to Choose: A Personal Statement, Chp. 6, "What's Wrong with Our Schools?"

Honig, B. "Why Privatizing Public Education is a Bad Idea" The Brookings Review, Winter 1990/91

*        North, D. and R. Miller, The Economics of Public Issues, Chp. 24 & 25, "The Economics of Public Higher             Education" and "The Economics of Lower Education"

*      Stiglitz, J., Economics of the Public Sector, Chp. 15, "Education".

VIII. Government and Health Care

*     Hyman, Chp. 9

       Dalrymple, Theodore "The Price Britian Pays for Free Medicine," WSJ, 7/21/98

        Friedman, M. "The Folly of Buying Health Care at the Company Store", WSJ, Feb. 3, 1993.

        Goldberg, R. "Why HMOs Now Love Regulation," WSJ, 7/17/98

        Huber, R. "Let the Market Remedy what Ails Health Care," WSJ, 7/13/98

        McGinley, L. and J. White, "Medicare’s Big Overhaul Is Bringing More Choice and Anxiety," WSJ 6/5/98.

IX. Financing Government Expenditures (Week of 11/15, 11/22)

*        Hyman, Chps 10 and 11.

Editorial, WSJ. "The Jagger Curve," WSJ 6/9/98

Gleckman, H. "Your Taxes May Be Higher Than you Think," Business Week, 3/9/98

Newton, J. "Sin Tax Creates Jobs - for Bootleggers," WSJ

Taylor, J. "Luxury Tax Sinks U.S. Boating Industry," WSJ.

Tregarthen, S. with M. Clark, "Does the Luxury Tax Hurt the Little Guy?" The Margin, Spring 1992.

X. Income Taxation (Week of 11/22, 11/29)

*     Hyman, Chps 13 & 14

       Samuelson, R. "Call it the Flaky Tax," Newsweek, January 29, 1996

        -------------" It’s the Argument Neither Party Wants to Hear:Increasing Tax Rates on the Rich Won’t Work,"          WSJ, 4/27/93.

XI. Taxation of Consumption and Sales (Week of 12/6)

*     Hyman, Chp. 16