Public Economics

Volledige vakbeschrijving

Public economics (or public finance) is the study of the role of government in the economy. It deals with the formulation, execution, and effects of government policy, or more generally with non-market mediated policies. This study 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? The government differs from other organizations because it can use legal instruments to enact policies and may also have different goals than other actors in the economy. The typical allocation mechanism for scarce resources in markets is the price mechanism, which – under particular circumstances – aggregates information and preferences of many different individuals in an efficient way. If these assumptions are not met or Pareto efficiency alone is not a sufficient criterion since a particular allocation is "unfair", there might be room for intervention by the public sector. We will discuss arguments for when government intervention is warranted and whether such intervention is beneficial. This course provides basic knowledge of the functioning and the relevance of the public sector. The topics include (i) market failures such as incomplete information, public goods, and externalities, (ii) issues with fairness, inequality, poverty, redistribution, and taxation, and (iii) political decision-making and elections. These topics will be analyzed from a normative (welfare economic) as well as from a positive (explanatory) perspective, with emphasis on the relevance and limitation of traditional economic theory. After the course, you should be able to reflect and recognize the strength but also some of the limitations of traditional economic theory and interpret some basic empirical evidence. You should also be able to critically assess political and economic discussions pertaining to the public sector.