Full course description
How can we limit global warming? Who should provide education and health care? Is growing income inequality a problem? Should we have a universal basic income?
Questions like these are at the core of the field of public economics. Public economics (or public finance) is the study of the role of government in the economy. It is all about the formulation, execution, and effects of government policy. Studying public economics involves answering the following four broad questions:
When should the government intervene in the economy?
How might the government intervene?
What is the effect of those interventions on economic outcomes?
Why do governments choose to intervene in the way that they do?
We will return to these questions throughout the entire course. In each tutorial, we will discuss one specific policy challenge or societal problem—just like those mentioned in the very beginning. During the tutorials, we will start with the first question and ask whether there is a justification for government intervention. Afterwards, we will turn to questions two and three and discuss potential policy responses and their effects. The aim of the tutorials is to learn about the way how economists think about these challenges and how to incorporate them into economic models.
The government differs from other organizations because it can use legal instruments to enact policies. It may also have different goals than other actors in the economy. However, as economists, we often call for free markets and argue in favor of free exchange among firms and individuals, since the price mechanism is an efficient allocation mechanism for scarce resources. So why even have a government?
Market Failures. One reason is just that the real world is way nastier than our cute theoretical models. In the real world, we regularly see that markets fail. Reasons can be, e.g., that private actors do not internalize all their costs, that buyers and sellers have asymmetric information, the tragedy of the commons, or the presence of monopolies. We will discuss several such cases in Part II of the course.
Fairness. Even if markets worked perfectly fine, we may conclude that efficiency alone is not a sufficient criterion. In Part III of the course, we will focus on fairness issues and discuss aspects of inequality, poverty, welfare, and redistribution.
This course provides basic knowledge of public policy. After the course, you should be able to critically assess political and economic discussions pertaining to the public sector.
- Understand how economists think about government intervention and public policy.
- Apply economic models to calculate and predict the effects of policy reforms.
- Analyze current policy challenges like limiting climate change and rising inequality.
SSC2048 Intermediate Microeconomics, Basic Calculus (differentiation).
- Rosen, H. and Gayer, T. (2014). Public Finance, 10th edition. New York: McGraw-Hill/Irwin.