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UNITY UNIVERSITY
COLLEGE OF BUSINESS & ECONOMICS
DEPARTMENT OF ECONOMICS

Instructor’s name: Urgaia Rissa(PhD)

Email address:urgaia.rissa@gmail.com
Program: BA Degree, 2022/23 A.Y.
Course Title: Public Finance
Course No: Econ.442
Credit Hours: 3
Prerequisite: Econ.421: Monetary Economics
Objective: The general objective of this course is to provide the theoretical and empirical
base, which is required for the understanding of key issues of public expenditure and
revenue policies that affect individual behavior and how the government itself sets
policies.
Description: This course examines the economic aspects of government intervention in
the economy, the theory of public goods, the equity and efficiency effects of public
expenditures and fiscal politics, intergovernmental fiscal relations. It also includes
Budget System/Public Budgeting; Government Revenue Analysis: Taxation; Public
Expenditure; Fiscal Policy: Macroeconomic Analysis of Fiscal Policy and Some Fiscal
Policy Issues of Developing Countries
Course Policy
 Late coming is not allowed and no student is allowed to enter after class has started.
 Duplication of assignments is strictly forbidden; it entails serious penalty.
 Assignments are required to be submitted before or on the deadline.
 Cheating during exam sessions results in a minimum of “F “grade while cheating in
quizzes and tests is subjected to a zero mark. All cheating cases will be reported to
the concerned body for further considerations.
 Students should switch off their cell phones while they are in class and must keep
their cell phones switched off during all kinds of exam sessions.
 Students must attend class for the course. Failure to attend the class will not allow the
student to sit for the final exam.
 Missing a quiz without convincing evidences will earn the students a grade of zero
marks in that specific quiz

Module Delivery Methods

The delivery method shall be student-centered. Students are highly expected to
participate in class works and in group discussions inside and outside of the class.
Specifically the course will be delivered through the following methods: lecture method,
in-class problem solving and group work and assignments.
Assessment Methods-Student evaluation in this module consist both formative and
summative assessments including quizzes, test and final exam. Marks will be allocated
according to the following grading schedule.

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Assessment method Weight

Class attendance 5%
Tests 15%
Term paper 30%
Final Exam 50 %
Total 100%

Course Content:
CHAPTER I: INTRODUCTION TO PUBLIC FINANCE (5 HRS)
1.1. Definitions and Scope
1.2. Similarities and Differences between Public and Private Finance
1.3. Different Perspective on the Role of Government in Public Sector
1.4. Importance of Public Finance
II: ECONOMIC ANALYSIS OF PUBLIC GOODS AND EXTERNALITIES (9
HRS)
2.1. Public Goods
2.1.1.Efficient Provision of Public Goods
2.1.2. Other Mechanisms for providing the efficient Level of Public Goods
2.1.3. Public provision Vs Public Production
2.2. Externalities and Free-Rider Problem
2.2.1. Characteristics of Externalities
2.2.2. The Free Rider Problem
2.2.3. Allocation of Resources with Presence of Externalities
2.2.4. Remedial Measure: How to internalize externalities.
2.2.5 Market and Government Failures in Public Sector
III. PUBLIC CHOICE AND ECONOMIC THEORY OF POSITIVE AND
NORMATIVE ANALYSIS (8 HRS)
3.1. Public Choice Theory
3.1.1. Elected Politicians for Public Employees
3.2.1. Positive Analysis of Economic theory
3.2. 2.Normative Analysis of Economic theory
3.2.2.1. Welfare Economics of Pure Exchange
3.2.2.2. Production Economy
3.3. Efficiency between Production and Consumption
3.4. Social Welfare Maximization
3.5. Fundamental Theorem of Welfare Economics
CHAPTER IV: INCOME REDISTRIBUTION, TAXATION, EQUITABLE AND
EFFICIENCY (10 HRS)
4.1. Rationales for Redistribution and Measuring Income Inequality
4.2. Direct and Indirect Taxes
4.2.1. Direct Taxes
4.2.2. Indirect Taxes
4.3. Proportional, Regressive and Progressive taxation
4.4. Tax Incidences

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4.4.1. Partial Equilibrium Analysis of Tax Incidence

4.4.2. Incidences of taxes on factors
4.4.3. Incidence of taxation when market imperfect
4.4.4. General Equilibrium Approach to Tax Incidence
4.5. Taxation and Equity
4.6. Efficiency and Taxation
4.7. Tax rate and tax revenue
4.8. Administration and compliance cost of tax
CHAPTERV: PUBLIC BUDGET, EXPENDITURE AND COST-BENEFIT
ANALYSIS (8 HRS)
5.1 Public Budget, Its Process and Kinds
5.2. Economic Analysis of the Budget Process
5.3. Structure of Public Expenditure and Its Growth
5.4. Public Sector Projects Evaluation
5.5. Discount Rate for Government Projects
5.6. Valuing Public Benefits and Costs
CHAPTER VI: MACROECONOMIC ANALYSIS OF FISCAL POLICY(9 HRS)
6.1. Budget Deficit vs. National Debt
6.2. Primary Deficit, Total Deficit, and Debt
6.3. Structural Deficits, Cyclical Deficits, and Fiscal Gap
6.4. Objectives of Fiscal Policy
6.5. Tools of Fiscal Policy
6.6. Keynesian View of Fiscal Policy
6.7. New Classical View of Fiscal Policy
6.8. Supply-Side Effects of Fiscal Policy
6.9. Modern Synthesis View of Fiscal Policy
6.9.1. Crowding Out Effect
6.9.2. Timing Problems of Fiscal Policy
6.9.3. Automatic Stabilizers
6.10. Fiscal policy and the Multiplier
6.11. Fiscal Policy - Empirical Evidence
6.12. The limitations of Fiscal Policy
CHAPTER VII: FEDERAL-STATE FINANCIAL RELATIONS IN ETHIOPIA (5
HRS)
7.1 Provisions under the Constitution of Ethiopia
7.2 Federal Power of Taxation in Ethiopia
7.3 State Power of Taxation in Ethiopia
7.4 Concurrent Power of Taxation in Ethiopia
READING MATERIALS
 Brown, C.V. and Jackson, P.M.(1990) Public Sector Economics, Basil Blackwell,
4th Edition.
 David A. Starrett, Foundation of Public Economics, 1988.
 David N. Hyman, Public Finance, a contemporary Application of theory to
Policy,7th edition,2002
 Gareth D. Myles (1997) Public Economics. Cambridge University press
 Gareth D. Myles, Public Economics, Cambridge University Press, reprinted 1997.
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 Gruber, Jonathan (2005). Public Finance and Public Policy. New York, NY:
Worth Publishers
 Harber P. Bernand (1999) Modern public finance. Delhi: AITBS Publishers &
Distributors.
 Harvey S. Rosen, Public Finance,6th edition, 1995.
 Hymen N. David (2002). Public finance: A contemporary application of theory to
policy (7th Ed). Ohio: South-western.
 Musgrave A. Richard & Peggy Musgrave (1989): Public Finance in theory and
practice ( 5th ed). McGraw-Hill, New York
 Richard A. Musgrave and Peggy B. Musgrave, Public Finance in Theory and
Practice, 5th edition, 1989.
 Rosen S. Harvey (2002) Public finances (6th Ed). New York: McGraw- Hill.
 Ulbrich Hulley (2003) Public finance in theory & practice
 Vito Tanzi, Public Finance in Developing Countries,1991.
REFERENCES
1. Jean Hindriks and Gareth D. Myles(2013). Intermediate Public Economics,
second edition. The MIT Press, Cambridge, Massachusetts, London, England.
2. Arye L. Hillman(2009). Public Finance and Public Policy: Responsibilities and
Limitations of Government: Second Edition. Cambridge University Press
3. Gareth D. Myles(2001). Public Economics.

 Atkinson, Anthony B. and Joseph E.Stiglitz.1980.Lecture on public economics

McGraw-Hill books Co.
 Bailey, Stephen J. 1995. Public sector Economics: Theory, policy and practice
Macmillan Press Ltd.’London.
 Baker, Samuel& Catherine Elliot (eds.) 1990. Readings in public sector Economics
.D.C.Health and Co: Lexington.
 Boadway. Robin W. 1979.Public sector Economics. Wintrop Publisher: Cambridge.
 Brown .C.V. and P.M. Jackson, 1990.Pulic sector Economics, 4th edition.
Blackwell: Oxford.
 Browning, E.K. and J.M. Browning, 1987 Public finance and the price system 3red
Edition. Macmillan publishing Co.: New York.
 Cullis John ,& Philip Jones 1998. Public finance and public choice .2nd edition.
Oxford University Press; Oxford.
 Easterly, William , et al (eds.),1994. Public sector Deficits and macroeconomic
performance, Oxford University Press : Oxford.
 Jha Raghbendra ,1998 Modern Public economics Rout ledge : London
 Musgrave ,R.A and Peggy Musgrave ,1982. Public Finance in theory and practice,
3rd edition McGraw-Hill: London.
 Stiglitz,J.E. 2000.Economics of the public sector ,3rd edition .W.W. Norton & co.:
New York . Any other relevant books on the course may serve the purpose.
Areas for term paper*
1. Arguments for and against state intervention in the economy
2. Fiscal federalism
3. Powers of state and federal governments on tax

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4. Types of tax in Ethiopia

5. Means of deficit financing in Ethiopia
6. Fiscal policy:
7. Value added tax(VAT):
8. A brief review of government budget in Ethiopia
9. Domestic versus external sources of revenue of the government of Ethiopia
10. Impacts of deficit financing on key macroeconomic variables: inflation,
unemployment, private investment, economic growth
11. Capital versus recurrent expenditures in Ethiopia
12. Theories of public expenditure
13. Theories of public budgeting
14. Federal versus state power of taxation in Ethiopia
15. Fiscal policy and its implementation in Ethiopia
16. Structure of public debt in Ethiopia
17. Effects of public debt on the Ethiopian economy
18. …….etc.
* Students are expected to prepare and present a term paper on the above selected
issues (you can choose another related topic but you have to agree with your
instructor).
Instruction for the term paper

1. Students are required to write the term paper in group. No group may have less
than four or more than five members
2. Students can choose their topic but they have to agree with the instructor
3. Students have to present their work at the end of the semester. The instructor will
pick the presenter few minutes before presentation
4. Papers should deal with the Ethiopian economy. And emphasis should be on
analysis besides description
5. The paper could account up to 30% of the total evaluation
6. The paper should not exceed 20 type written pages (1.5 space, 12 font size, new
times roman) or fall short 10 pages
7. The paper should follow standard citation and should have appropriate list of
reference
8. The paper should not be submitted no later than two weeks before the official
class end
Format/outline of the term paper
The term paper is supposed to contain the following Components/elements
1. Title page (Name of the university, title, name of the writer, course name, name of
the instructor, date, place ….etc)
2. Acknowledgement (if required)
3. Table of contents
4. List of Figures (if any)
5. List of tables (if any)
6. Abstract (if Required)
7. Introduction
8. Main Body

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9. Conclusion
10. Reference/works cited (use APA style)