Princeton University Harvey S.

Rosen
Department of Economics Spring 2018

Economics 341

Public Finance

Subject Matter: This course develops a conceptual framework for examining

government taxing and spending, and uses this framework to analyze current public
policy issues. We focus on both the efficiency and equity aspects of the government's
fiscal activities.

Prerequisite: Intermediate microeconomics. This requirement can be met by

Economics 300, Economics 310, or WWS 300.

Organization: There will be two lectures and one class each week. Classes will be
devoted to discussing the weekly problem sets and introducing new material. The course
grade will be determined by class participation (10 percent), a written assignment (10
percent), midterm examination (25 percent), and final examination (55 percent). The
midterm exam is during lecture on Thursday, March 15, 2:30 PM. There is no makeup
exam. You may not take the exam either before or after this time.

Web site: This course has a Blackboard website. Please check it routinely for
announcements, additional assignments, solutions to problem sets, and so on. In
addition, from time to time I will communicate with you via e-mail, so please check your
inbox on a regular basis.

Reading: The main text for this course is H. Rosen and T. Gayer, Public Finance (tenth
edition). (This is referred to below as "Text.") The readings other than the text are on
electronic reserve.

Packet: You should purchase from Pequod the packet of materials for this course. The
packet includes lecture handouts, problem sets, practice examinations, and so on. Please
bring it with you to each lecture and precept.

Outline of Topics and Readings [items marked with an asterisk (*) are optional]:

Lecture Topic and Reading

Number

INTRODUCTION

1 Getting Started
 2

Text: Chapters 1 and 2

Taylor, Timothy, “The Transition to Transfer Payment Government,”

The Conversable Economist, July 1, 2016,
http://conversableeconomist.blogspot.com/2016/07/the-transition-to-
transfer-payment.html

2 Markets and Resource Allocation

Text: Chapter 3

Mankiw, N. Gregory, “Why Health Care Policy Is So Hard,” New York

Times, July 28, 2017, https://www.nytimes.com/2017/07/28/upshot/why-
health-care-policy-is-so-hard.html?_r=0

Cochrane, John, “Health Care Policy Isn’t so Hard,” The Grumpy

Economist, September 25, 2017,
http://johnhcochrane.blogspot.com/2017/09/health-care-policy-isnt-so-
hard.html?m=1

ANALYSIS OF PUBLIC EXPENDITURE

3 Public Goods

Text: Chapter 4 (omit Appendix)

4 Income Distribution

Text: Chapters 12 and 13

*Meyer, Bruce D. and James X. Sullivan, “Consumption and Income

Inequality in the U.S. Since the 1960s,” National Bureau of Economic
Research, Working Paper No. 23655, August 2017.

*Kosar, Gizem and Robert A. Moffitt, “Trends in Cumulative Marginal

Tax Rates Facing Low-Income Families, 1997-2007,” in Tax Policy and
the Economy 31, 2017.

Stiglitz, Joseph, “Of the 1%, by the 1%, for the 1%,” Vanity Fair, May
2011, http://www.vanityfair.com/society/features/2011/05/top-one-
percent-201105#

Cochrane, John, “Why and How We Care about Inequality,” The Grumpy
 3

Economist, September 29, 2014,

http://johnhcochrane.blogspot.com/2014/09/why-and-how-we-care-
about-inequality.html

5 Externalities

Text: Chapter 5

Marron, Donald and Adele C. Morris, “How Should We Use the Revenue
from Taxing Carbon?” Urban Institute and Brookings Institution,
February 22, 2016, http://www.taxpolicycenter.org/taxvox/how-should-
we-use-revenue-taxing-carbon .

Krugman, Paul, “The Axis of Climate Evil,” New York Times,” August
11, 2017, https://www.nytimes.com/2017/08/11/opinion/climate-science-
denial.html?rref=collection%2Fcolumn%2Fpaul-
krugman&action=click&contentCollection=opinion&region=stream&mo
dule=stream_unit&version=search&contentPlacement=3&pgtype=collect
ion .

Henderson, David R. and John H. Cochrane, “Climate Change Isn’t the

End of the World,” The Wall Street Journal, July 30, 2017,
https://www.wsj.com/articles/climate-change-isnt-the-end-of-the-world-
1501446277.

Pindyck, Robert S., “The Use and Misuse of Models for Climate
Change,” National Bureau of Economic Research, Working Paper 21097,
April 2015. http://www.nber.org/papers/w21097

Allcott, Hunt and Michael Greenstone, “Is There an Energy Efficiency

Gap?” Journal of Economic Perspectives, Winter 2012, pp. 3-28.

6 Political Economy

Text: Chapter 6

*Acemoglu, Daron, et al., “Democracy, Redistribution and Inequality,”

National Bureau of Economic Research, Working Paper No. 19746,
December 2013.

*Brunner, Eric, et al., “Does Less Income Mean Less Representation?”

American Economic Journal: Economic Policy, May 2013, pp. 53-76

Gayer, Ted and W. Kip Viscusi, “Behavioral Public Choice: The

Behavioral Paradox of Government Policy,” The Brookings Institution,
 4

July 2015. https://www.brookings.edu/research/behavioral-public-

choice-the-behavioral-paradox-of-government-policy-2/

7-8 Social Security

Text: Chapter 11

Feldstein, Martin, “Saving Retirement,” Project Syndicate, February

2014, http://www.project-syndicate.org/commentary/martin-feldstein-
advocates-automatic-increases-in-the-eligibility-age-for-full-pension-
benefits

*Shoven, John B. and Sita N. Slavov, “Political Risk Versus Market Risk
in Social Security,” National Bureau of Economic Research, Working
Paper Number 12135, March 2006.

*Congressional Budget Office, Social Security Policy Options, 2015,

December 2015.

9 Cost-Benefit Analysis

Text: Chapter 8

Sunstein, Cass R., “On Not Revisiting Official Discount Rates:

Institutional Inertia and the Social Cost of Carbon,” American Economic
Review: Papers and Proceedings, May 2014, pp. 547-551.

Rizzo, Mario, “Richard Thaler’s Nobel Prize,” Think Markets, October 9,

2017, https://thinkmarkets.wordpress.com/2017/10/09/richard-thalers-
nobel-prize/

*Fowlie, Meredith, Michael Greenstone, and Catherine Wolfram, “Do

Energy Efficiency Investments Deliver? Evidence from the
Weatherization Assistance Program,” National Bureau of Economic
Research, Working Paper No. 21331, July 2015.

A FRAMEWORK FOR TAX ANALYSIS

10 Taxation and Income Distribution (Partial Equilibrium)

Text: Chapter 14

*Congressional Budget Office, The Distribution of Household Income

 5

and Federal Taxes, 2013, June 2016.

http://www.cbo.gov/sites/default/files/114th-congress-2015-
2016/reports/51361-householdincomefedtaxesonecol.pdf .

*Congressional Budget Office, Effects of a Carbon Tax on the Economy

and the Environment, May 2013.

11 Review for Midterm Exam

12 Midterm Exam

13 Taxation and Income Distribution (General Equilibrium)

*Gravelle, Jennifer, “Corporate Tax Incidence: Review of General

Equilibrium Estimates and Analysis,” National Tax Journal, March
2013, pp. 185-214.

14 Taxation and Efficiency

Text: Chapter 15

Davis, Lucas W., “The Economic Cost of Global Fuel Subsidies,”

American Economic Review, May 2014, pp. 581-85. (Focus on the
online Appendix, which is available at
https://www.aeaweb.org/articles?id=10.1257/aer.104.5.581.) .

*Oates, Wallace E. and Robert M. Schwab, “The Window Tax: A Case

Study of Excess Burden,” University of Maryland, Working Paper,
September 2013.

15 Optimal Taxation

Text: Chapter 16

*Weinzierl, Matthew, “Review of ‘From Optimal Tax Theory to Tax

Policy,’” National Tax Journal, March 2013.
http://go.galegroup.com/ps/pdfGenerator?tabID=&actionCmd=DO_DO
WNLOAD_DOCUMENT&docId=GALE%7CA320731881&userGroup
Name=brookdalecc&inPS=true&prodId=AONE

*Mathus, Aparna et al.., “Should the Top Marginal Income Tax Rate be
74 Percent?” Tax Notes, November 19, 2012, pp. 905-915.

THE U.S. REVENUE STRUCTURE

 6

16-18 Personal Income Tax

Text: Chapter 17

Feldstein, Martin S., “Raising Revenue by Limiting Tax Expenditures,”

National Bureau of Economic Research, Working Paper No. 20672,
November 2014.

*Larrimore, Jeff, Richard V. Burkhauser, Gerald Auten and Philip

Armour, “Recent Trends in U.S. Top Income Shares in Tax Record Data
Using More Comprehensive Measures of Income Including Accrued
Capital Gains,” National Bureau of Economic Research, Working Paper
23007, December 2016.

19-20 Personal Taxation and Behavior

Text: Chapter 18

*Moretti, Enrico and Daniel Wilson, “The Effect of State Taxes on the
Geographical Location of Top Earners: Evidence from Star Scientists,”
National Bureau of Economic Research, Working Paper No. 21120, April
2015.

*Albouy, David and Andrew Hanson, “Tax Benefits to Housing and

Inefficiencies in Location and Consumption,” in Jeffrey R. Brown (ed.),
Tax Policy and the Economy volume 28, The University of Chicago
Press, 2014, pp. 63-96.

21-22 Business Taxation

Text: Chapter 19

*Heider, F. and A. Ljungqvist, “As Certain as Debt and Taxes:

Estimating the Tax Sensitivity of Leverage from State Tax Changes,
Journal of Financial Economics, 2015, pp. 684-712.

*Clarke, Conor and Wojciech Kopczuk, “Business Income and Business

Taxation in the United States since the 1950s,” in Robert Moffitt (ed.)
Tax Policy and the Economy volume 31, The University of Chicago
Press, 2017, pp. 121-160.

23-24 Tax Reform

Text: Chapter 21
 7

*Auerbach, Alan J., “Demystifying the Destination-Based Cash-Flow

Tax,” National Bureau of Economic Research, Working Paper 23881,
September 2017.

*Kopczuk, Wojciech, “Taxation of Intergenerational Transfers and

Wealth,” Handbook of Public Economics, volume 5, June 2013, pp. 329-
390.