Professor Nora Gordon
Office: Economics 328
Email: negordon@ucsd.edu
ECONOMICS 231
PUBLIC ECONOMICS: GOVERNMENT EXPENDITURES
Mon./Wed. 11:00-12:20, Economics 304
http://econ.ucsd.edu/faculty/negordon/econ231/econ231home.html
This course covers the role of government expenditures in the economy. We will begin with a discussion of optimal government expenditure and the public goods problem. We then cover a sampling of topics at the intersection of political economy and public finance. Next, we consider public finance in a system with multiple jurisdictions, and review empirical research on public education. Each topic in the course will be motivated by the theoretical work in the relevant area, but the emphasis of the course is empirical. A main goal of the course is to teach you how to conduct and evaluate empirical research on government expenditure programs. The most important topics in government expenditures that are not included in this course are social insurance and redistribution, which are covered in Julie Cullen’s public economics course. Taxation is covered in Roger Gordon’s public economics course and not in this course.
COURSE REQUIREMENTS:
This course requires a paper proposal (in two drafts), presentation of the final proposal, presentation of one assigned paper, one referee report, and a final exam.
|
Assignment |
Due date |
Weight in course grade |
|
Presentation of assigned paper |
Depends on paper chosen; sign up for paper in class April 2 |
5% |
|
Meet with me before first draft |
Before May 1, by appointment |
|
|
First draft paper proposal |
In class May 14 |
15% |
|
Referee report |
In class May 7 |
10% |
|
Final paper proposal |
June 6, by 4:30 p.m. |
25% |
|
Presentation of paper proposal |
June 2 or 4 |
5% |
|
Final exam |
June 13 |
40% |
Each student must meet with me individually at least once before May 1 to discuss the proposal before submitting a first draft. Come to the meeting with a question—even if you suspect it is too broad or too narrow—and a list of at least four related papers you have found, including at least one unpublished paper.
Academics frequently write referee reports for journals, advising editors whether to publish papers and if so, with what revisions. These reports begin with a brief summary of the paper, but spend most of their (2-3 page single-spaced) text critiquing the paper and providing suggestions for improvement. In order to ensure that you are familiar with the most recent research related to your paper proposal, you will write a referee report on an unpublished paper related to your topic (it is okay if the paper has been accepted for publication). You can find unpublished papers through NBER, IZA, departmental working paper series, Google Scholar, SSRN, or the author’s webpage. This paper need not be issued as part of any formal working paper series.
The first draft of the paper proposal (about 10 pages) will pose a question in public economics, motivate that question, and place it in the context of the existing literature. The second draft must refine the first draft, and, additionally, describe an appropriate data set (that actually exists) and empirical methodology for answering the question. You may write a theoretical paper if you prefer; we will discuss how theoretical paper will evolve between drafts on a case-by-case basis. The goal of this assignment is for you to have a “blueprint” for carrying out an original research project. I encourage you to discuss your progress and future directions with me frequently during this process. More detailed paper proposal guidelines follow.
Note: there will be no class Monday, April 14. Instead, we will meet Friday, April 18 from 2:00-3:20 in Economics 304.
Paper proposal
assignment guidelines
The format I describe here will help you set out the skeleton of an applied paper, which you can “fill in” after the class (as a second-year econometrics project or third-year paper, for example). These guidelines are flexible and we can discuss what would be most useful on a case-by-case basis (for example, if you are further along with a project already, or if you wish to write a theoretical paper). If you are just starting an applied project, however, these are the criteria I think are most helpful for eventually writing a paper, and therefore the criteria upon which the assignments will be graded.
1. Define your question
Getting started is often the most difficult part. The point of this project is to move you beyond a point where you are interested in public economics, or even a more restricted area such as education policy, to a point where you can phrase your interest as a question. Looking through articles (skim through the Journal of Public Economics) or unpublished papers (look through the Public Economics working paper series at the NBER online) will help you identify the appropriate scope for a question. When in doubt, make it narrower to ensure that you will be able to answer it completely.
2. Motivate your question
You can do this in several ways. It is crucial that you convince the reader that this is an interesting and important question, whether theoretically or for policy purposes or both. This should happen right away, after stating the question. You should also review the literature to the extent necessary to show interest in the general area and that this particular question is not well answered already. Rather than writing a lengthy literature review on the broader topic, discuss the literature in relation to your question.
3. Show that you will be able to answer your
question (add to final proposal, not needed for first draft)
Discuss your empirical strategy and the data you plan to use. Be very clear about how you will credibly identify exogenous variation and therefore estimate a causal relationship. If you are using a new or unusual econometric method, review the methodological literature here as well. In this case, discuss only the aspects that are necessary to understand your paper.
A good strategy here is to start by thinking about what your ideal data would be, then see what data exist, and then decide if they are sufficient. It is likely that you will first come up with some questions that are interesting, important, and unanswered, only to realize that they are unanswered for a reason. Try not to be discouraged and to view it as part of the research process. The more specific you can be about what you are going to do, the better. Include equations to be specified and blank table shells for results.
4. Explain how you will interpret your findings
(add to final proposal, not needed for first draft)
Now that you have your blank table shells, how should we interpret what eventually will fill them? It is always good to put a coefficient reported in a table in a sentence so the reader can interpret it. For now, you can call that coefficient “X” or whatever you like as a placeholder, but you should try writing the sentence. This part of the assignment is important for helping you think about how specific the results are to your empirical setting (and remembering that local average treatment effects are local!).
Class calendar
(subject to revision)
|
Monday |
Wednesday |
|
Mar. 31 Introduction to course What is public economics? *Feldstein |
Apr. 2 Sign up for paper to present Externalities -- theory *Laffont Ch. 1 |
|
Apr. 7 Externalities -- empirical *Chay and Greenstone; |
Apr. 9 Public goods -- theory *Laffont Ch. 2 |
|
*Apr. 14—no
class meeting, rescheduled to Friday* For Wed. Apr. 16 Public goods – empirical *Andreoni; Fischel; Brunner
& Sonstelie |
Friday Apr. 18 Social choice *Laffont Ch. 4 and 5 |
|
Apr. 21 Empirical estimates of
demand for public goods Hedonic estimates Demand analysis *Black; Gyurko & Tracy;
Gramlich & Rubinfeld |
Apr. 23 Empirical estimates of
demand for public goods Flypaper effect *Gordon; Knight |
|
Apr. 28 Political economy I *Besley & Coate; Baron
& Ferejohn |
Apr. 30 Political economy II *Cutler, Elmendorf, &
Zeckhauser; Lee, Moretti, & Butler |
|
May 5 Political economy: endogenous borders *Alesina & Spaolare;
Alesina, Hoxby, & Baqir |
May 7 Referee report due in class Public finance with
multiple jurisdictions Tiebout model Club goods *Rubinfeld; Scotchmer |
|
May 12 Public finance with
multiple jurisdictions Empirical *Farnham & Sevak; Hoxby |
May 14 Paper proposal draft 1 due in class Public finance with
multiple jurisdictions Intergovernmental grants Empirical evidence on grants *Baicker & Staiger;
Cullen |
|
May 19 Elementary and secondary
education in the School finance *Fernandez & Rogerson;
Hoxby |
May 21 Elementary and secondary
education in the US The production of education *Hanushek; Jacob |
|
May 26 Memorial Day No class |
May 28 Higher education *Dynarski; Dynarski;
Peltzman |
|
June 2 Student research presentations |
June 4 Student research presentations |
|
FRIDAY June 6 Paper proposal draft 2 due |
FRIDAY June 13 Final exam 11:30-2:30 |
READINGS: Required readings are in bold. Most should be on JSTOR.
Index of Journal
Abbreviations
AER = American Economic
Review
EMA = Econometrica
JEL = Journal of Economic
Literature
JEP = Journal of Economic
Perspectives
JHR = Journal of Human
Resources
JOLE = Journal of Labor
Economics
JPE = Journal of Political Economy
JPubE = Journal of Public
Economics
NTJ = National Tax Journal
QJE = Quarterly Journal of
Economic
REStat = Review of Economics
and Statistics
REStud = Review of Economic
Studies
General References
A. Atkinson and J. Stiglitz,
Lectures in Public Economics (New York: McGraw Hill, 1980).
A. Auerbach and M.
Feldstein, eds., Handbook of Public Economics: Volumes 1 & 2
(Amsterdam: North Holland, 1985 and 1987).
*J. Laffont, Fundamentals of Public Economics (Cambridge: MIT
Press, 1988). Note: this is an e-book from UCSD library, not in
UCSD bookstore, available new and used on Amazon.
G. Myles, Public
Economics (New York: Cambridge University Press, 1995).
H. Rosen, Public Finance,
6th edition (
J. Stiglitz, Economics of
the Public Sector, 2nd edition (New York: Norton, 1988).
Note: Some papers listed as working papers may now
be published in journals and not cited here.
0.
Introduction to the Course
*M. Feldstein, “The Transformation of Public Economics Research:
1970-2000,” Journal of Public Economics, 86.3 (December
2002), 319-26.
http://www.nber.org/feldstein/publiceconomics.html
1. Optimal Expenditure Policy
1.1 Externalities
J. Andreoni and A.
Levinson, “The Simple Analytics of the Envrironmental Kuznets Curve,” Journal
of Public Economics, v 80, 2001, 269-286.
A. L. Bovenberg and R.
A. de Mooij, “Environmental Levies and Distortionary Taxation,” American
Economic Review, September 1994, 1085--1089.
*K. Chay and
M. Greenstone, “The Impact of
Air Pollution on Infant Mortality: Evidence from Geographic Variation in
Pollution Shocks Induced by a Recession.” Quarterly Journal of Economics, 118(3) (August 2003).
http://econ-www.mit.edu/faculty/download_pdf.php?id=838
R. Coase, “The Problem
of Social Cost,” Journal of Law and Economics, 1960, 1--44.
*T. Dee, “Are There
Civic Returns to Education?” Journal
of Public Economics 88 (9), August 2004, 1697-1720.
http://www.swarthmore.edu/SocSci/tdee1/Research/jpubec04.pdf
A. Dixit, and M.
Olson, “Does Voluntary Participation Undermine the Coase Theorem?” Journal
of Public Economics, June 2000, 309-336.
L. Ebrill and
D.
D.
J. Greenwood and R. P.
McAfee, “Externalities and Assymetric Information,” Quarterly Journal of
Economics, February 1991, 103--122.
G. Harden, “The
Tragedy of the Commons,” Science, 1968, December.
Laffont, Chapter 1.
G. Metcalf,
“Environmental Levies and Distortionary Taxation,” Journal of Public
Economics, February 2003, 87(2), 313-322.
1.2 Efficient Public Goods Provision
A. Atkinson and N. Stern,
"Pigou, Taxation and Public Goods," REStud 41 (1974), 119-128.
A. Atkinson and J.
Stiglitz, Chapter 16.
C. Ballard and D.
R. Boadway and M. Keen,
"Public Goods, Self-selection, and Optimal Income Taxation," International Economic Review 34 (1993),
463-78.
T. Gaube, "When do
Distortionary Taxes Reduce the Optimal Supply of Public Goods?," JPubE 76 (2000), 151-180.
L. Kaplow, "The Optimal
Supply of Public Goods and the Distortionary Cost of Taxation," NTJ 49 (1996), 513-533.
M. King, "A Pigouvian
Rule for the Optimal Provision of Public Goods," JPubE 30 (1986), 273-292.
*J. Laffont, Chapter 2.
G. Myles, Chapter 9.
P. Samuelson, "The Pure
Theory of Public Expenditure," REStat
36 (1954), 387-389.
J. Wilson, "Optimal
Public Good Provision with Limited Lump-Sum Taxation," AER 81 (1991), 153-66.
1.3 Voluntary Private Provision of Public Goods
J. Andreoni, "Impure
Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving?," Economic Journal 100(401) (1990),
464-77.
*J. Andreoni, "An Experimental Test of the Public Goods Crowding
Out Hypothesis," AER 83
(December 1993), 1317-27.
J. Andreoni and T.
Bergstrom, "Do Government Subsidies Increase the Private Supply of Public
Goods?," Public Choice 88
(1996), 295-308.
T. Bergstrom, L. Blume, and
H. Varian, "On the Private Provision of Public Goods," JPubE 29 (1986), 25-49.
*E. Brunner and J. Sonstelie, "School Finance
Reform and Voluntary Fiscal Federalism," Journal of Public Economics, 2003,
87(9-10) 2157-2185.
C. Clotfelter, Federal
Tax Policy and Charitable Giving (Chicago: University of Chicago Press,
1985), Chapters 1 and 2.
*W. Fischel, "Did Serrano Cause Proposition 13?," NTJ 42 (December 1989), 465-473.
L. Kaplow, "A Note on
Subsidizing Gifts," JPubE 58
(1995), 469-78.
B. Kingma, "An Accurate
Measurement of the Crowd-Out Effect, Income Effect, and Price Effect for
Charitable Contributions," JPE
97 (1989), 1197-1207.
J. Ledyard, "Public
Goods: A Survey of Experimental Research," in J. Kagel and A. Roth, eds., The
Handbook of Experimental Economics (Princeton: Princeton University Press,
1995), 111-194.
E. Ley, "On the Private
Provision of Public Goods, A Diagrammatic Approach," Investigaciones Economicas 20(1) (1996), 691-704.
J. Morgan, "Financing
Public Goods by Means of Lotteries," REStud
67(4) (2000), 761-84.
R. Roberts, "Financing
Public Goods," JPE 95 (1987),
420-437.
J. Weimann, "Individual
Behavior in a Free Riding Experiment," JPubE
54 (1994), 185-200.
1.4 Providing Public Goods with Perfect and with Asymmetric Information
A. Atkinson and J. Stiglitz,
Chapter 10.
R. Barnett, “Preference
Revelation and Public Goods” in P. Jackson, ed., Current Issues in Public
Sector Economics (New York: St. Martin’s Press, 1992), 94-131.
T. Bergstrom and R. Cornes,
"
Y. Chen and C. Plott,
"The
Y. Chen and F. Tang,
"Learning and Incentive-Compatible Mechanisms for Public Goods Provision:
An Experimental Study," JPE 106
(1998), 633-62.
E. Clarke, "Multipart
Pricing of Public Goods," Public
Choice 8 (1971), 19-33.
T.
E. Lindahl, "Just
Taxation - A Positive Solution,"
in R. Musgrave and A. Peacock, eds., Classics in the Theory of Public
Finance (New York: St. Martin’s Press, 1994).
H. Varian, "A Solution
to the Problem of Externalities When Agents are Well-Informed," AER 84 (December 1994), 1278-1293.
1.5 Social Choice Theory: The Median Voter Model
K. Arrow, Social Choice
and Individual Values (Yale University Press, 1963).
T. Bergstrom, "When
Does Majority Rule Supply Public Goods Efficiently?" Scandinavian Journal of Economics (1979), 216-226.
H. Bowen, "The
Interpretation of Voting in the Allocation of Resources," QJE 58 (1943), 27-48.
A. Caplin and B. Nalebuff,
"On 64% Majority Rule," EMA
56 (1988), 787-814.
A. Denzau and R. MacKay,
"Benefit Shares and Majority Voting," AER 66 (1976), 69-76.
T. Feddersen and
T. Feddersen and
A. Gibbard,
"Manipulation of Voting Schemes: A General Result," EMA 41 (1973), 587-600.
*J. Laffont, Chapters 4 and 5.
J. Ledyard, "The Pure
Theory of Large Two Candidate Elections," Public Choice 44 (1984), 7-41.
J. Levin and B. Nalebuff,
"An Introduction to Vote-Counting Schemes," JEP 9(1) (1995), 3-26.
C. Plott, "A Notion of
Equilibrium and its Possibility Under Majority Rule," AER 57 (1967), 787-806.
A. Sen, Collective Choice
and Social Welfare (San Francisco: Holden Day, 1970), Chapters 1-3.
K. Shepsle,
"Institutional Arrangements and Equilibrium in Multidimensional Voting
Models," American Journal of
Political Science 23 (1979), 23-59.
N. Tideman and G. Tullock,
"A New and Superior Process for Making Social Choices," JPE 84 (1976), 1145-1159.
1.6 Estimating the Demand for Public Goods
T. Bergstrom, D. Rubinfeld,
and P. Shapiro, "Micro-based Estimates of Demand Functions for Local
School Expenditures," EMA 50
(September 1982), 1183-1205.
*S. Black, “Do Better Schools Matter?
Parental Valuation of Elementary Education,” QJE 114(2) (1999), 577-.
D. Brookshire, M. Thayer,
*J. Gyourko and J. Tracy, "The Structure of Local Public Finance
and the Quality of Life," JPE 99
(August 1991), 774-806.
*E. Gramlich and D. Rubinfeld, "Micro Estimates of Public Spending
Demand Functions and Tests of the Tiebout and Median Voter Hypotheses," JPE 90 (June 1982), 536-560.