ECO 751 University of Kentucky

Fall 2002

Lecture: Tuesday/Thursday 2-3:15 pm, Economics Conference Room

Professor Aaron Yelowitz

Office: B&E, 335W, 859-257-7634

Office hours: By appointment or just drop in!

Public economics has two primary purposes: to analyze government taxation and government expenditure. This course will emphasize both, though we will focus somewhat more attention on the expenditure side. In terms of the taxation side, we will illustrate (with varying levels of complexity) different lessons that public finance teaches about economic efficiency, market failure, welfare loss and optimal taxation. Professor Hoyt, who is an expert on the taxation side, has generously provided some of his notes which I will follow to some extent (with several important changes). You can see the structure of his class at: http://gatton.uky.edu/Faculty/hoytw/751/751.html . In terms of the expenditure side, we will explore how government intervention changes the opportunities and incentives for firms, families, individuals, service providers and state and local governments. Most of the assigned papers will be empirical. The course will typically discuss econometric techniques within the context of the empirical articles.

Course Requirements:

An important objective of this course is to encourage you to think about promising research areas for your dissertation. To accomplish this, you will be required to evaluate several pieces of work. More details will be forthcoming as the semester goes on.

Referee Report	30%
In-class presentation	30%
Data replication/extension	30%
Participation	5%
Take-home final exam	5%

First, I will assign a paper to the class. Each student (on his or her own) will critically review and write up a report for the article, as if you were a "referee" for an academic journal. The review should be no longer than 6 pages, double-spaced.

Second, you will present an in-class presentation on a paper or topic related to public finance that you find interesting. It will be your job to “lecture” to us, and to give critical feedback on the work the authors have done. This will be toward the end of the semester; the length may depend on the number of students presenting. I will meet with each of you individually and must approve your presentation topic.

Third, you will do a “data extension.” Over the course of the semester, we will see what kinds of data sources are out there for doing empirical work in applied microeconomics, and some of the software that you can use to econometrics. Your job will be to take a previous paper (broadly related to public finance, public policy, or labor economics), and try to replicate/extend the results. For example, you may take a study that uses the Current Population Survey (CPS), a common data set in many studies, and try to replicate the results using newer years, or using a different data set (such as the Panel Study of Income Dynamics). You will again need to consult with me and get my approval.

Fourth, I have the strong feeling that the class will be most useful if people view it more as a gateway toward writing a dissertation than as another speed-bump that requires you to show off your mathematical skills. After your second year of graduate school, you will essentially be done taking exams for the rest of your life. After you are done with the “test-taking” phase, you move into the “research phase,” and many students are not adequately prepared for this transition. In terms of participation, I mean reading the assignments ahead of time, having opinions and questions about them, and trying to think about how the studies could be extended into other research topics.

Fifth, the final exam will test on several articles (not necessarily from the reading list) which I assign shortly before the final. You may bring the articles and any notes to the final exam. In addition, attendance and participation at the "Microeconomics seminar" (usually held on Fridays from 2-4) is strongly encouraged: cutting-edge, modern empirical work on important and timely issues is presented in this workshop.

Course Topics / Outline / Readings

1. What is public finance?

- Rosen, Harvey, Public Finance, Fifth Edition, Chapter 1

- Rosen, Harvey, Public Finance, Fifth Edition, Chapter 2

2. The Terminology of Welfare Economics / Efficiency in the market / Fundamental Welfare Theorem

- Hoyt, William, Lecture 1

- Hoyt, William, Lecture 2

- Rosen, Harvey, Public Finance, Fifth Edition, Chapter 4

3. Public Goods / Free-rider problem / Externalities

- Hoyt, William, Lecture 3

- Rosen, Harvey, Public Finance, Fifth Edition, Chapter 5

- Rosen, Harvey, Public Finance, Fifth Edition, Chapter 6