MSc in Economics (LM-56) - Module 8011566 Public Sector Economics and Management Gianni De Fraja Lecturer Gianni De Fraja contacts Room P1 S31 defraja@economia.uniroma2.it http://economia.uniroma2.it/faculty/85/de-fraja-giovanni sites.google.com/site/giannidefraja/ @giannidefraja

Module 8011566 Public Sector Economics and Management Gianni De Fraja Laurea Pisa 1982 PhD Siena 1987 DPhil Oxford 1990 29 years teaching experience (Leicester, Bristol, York, Nottingham) about 60 articles in international journals research interests industrial economics game theory public economics – the economics of education all info at: https://dl.dropboxusercontent.com/u/6899074/TorVergata/PublicEconomics%20Outline.ppt

Module 8011566 Public Sector Economics and Management list of links Powerpoint of the slides https://dl.dropboxusercontent.com/u/6899074/TorVergata/PublicEconomics%20Outline.ppt https://dl.dropboxusercontent.com/u/6899074/TorVergata/PublicEconomics%20Part%201.ppt https://dl.dropboxusercontent.com/u/6899074/TorVergata/PublicEconomics%20Part%202.ppt https://dl.dropboxusercontent.com/u/6899074/TorVergata/PublicEconomics%20Part%203.ppt https://dl.dropboxusercontent.com/u/6899074/TorVergata/Presenting%20an%20article.pptx Pdf of the slides https://dl.dropboxusercontent.com/u/6899074/TorVergata/PublicEconomics%20Outline.pdf https://dl.dropboxusercontent.com/u/6899074/TorVergata/PublicEconomics%20Part%201.pdf

Module 8011566 Public Sector Economics and Management list of links Exercises https://dl.dropboxusercontent.com/u/6899074/TorVergata/ExAll.pdf Articles available for presentations (provisional!! These articles are for last year new ones will be added) https://dl.dropboxusercontent.com/u/6899074/TorVergata/ArticlesRoma2016.xls Past presentations (high marks only) https://dl.dropboxusercontent.com/u/6899074/TorVergata/ArticlesRoma2015.xls (sheet 2) To see the video enter the YouTube Code (column M) in the search box in youtube

Module 8011566 Public Sector Economics and Management All lectures take place in Aula S11. Video of lectures. Last year some of the lectures were recorded. I provided a camera (and short term storage), but the management of the recordings was too time consuming. I am happy to co-ordinate recordings (eg post link or instructions here), but I need to leave to organization to you.

Day Time Approximate Topic Monday Nov 07, 2016 16-18 Part 1: The role of the state Tuesday Nov 08, 2016 14-16 Wednesday Nov 09, 2016 9-11 Nov 14, 2016 Nov 15, 2016 Part 2: The revenue side: Taxation Nov 16, 2016 Nov 21, 2016 Nov 22, 2016 Nov 23, 2016 9-10 10-11 Talk on presentations Nov 28, 2016 Part 3: The expenditure side: Publicly provided goods Nov 29, 2016 Nov 30, 2016 12-13 Class – Exercises 1 Dec 05, 2016 Dec 06, 2016 Dec 07, 2016 Class – Exercises 2 Dec 12, 2016 Dec 13, 2016 Student presentations Dec 14, 2016

Module 8011566 Public Sector Economics and Management Exam Timetable Appello Day Time Room Winter 1 23/1/2017 12noon TBA Summer 1 23/6/2017 Autumn 14/09/2017

Module 8011566 Public Sector Economics and Management Assessment Rules. The final exam is a 90 minutes written test consisting of two questions, as follows. A mathematical exercise, similar but easier than those carried out during the course, and the  discussion of an article and/or chapter chosen  among those presented in class). Within each question there might be a choice of "subquestions" (this will certainly be the case in the Winter session: in this exam, one question will be an essay/open question, which can be answered by using the general knowledge of the field of public economics (and therefore with the knowledge and familiarity with a good manual of public economy, such as Rosen and Gayer). To pass the exam it is necessary to obtain a mark of 18 in both questions. The mark for the written exam is given by the average mark of the two questions. In each questions the scale of marks goes from 0 to 34, so students can obtain a final mark of 30 even without answering perfectly all the questions. In addition students can volunteer to give presentations and have their mark added to the mark of the exam. Each presentation will be given a mark from -2 to +3, which is added to the mark of the written exam, and rounded to the nearest integer to determine the final mark of the students. NB 1: If the student fails (or chooses not to accept the mark awarded) he/she will need to retake the entire exam at a subsequent session. NB 2: There is one exam in each session.

Public Sector Economics and Management Presentations. Students’ presentations These will be assessed and the student will be allowed to choose whether to have them included as an element of the final evaluation of the course. The aim of the presentation is to transfer and communicate new knowledge to a group of people who have a general knowledge of economics or finance, but not necessarily in possession of complete familiarity with all aspects of that topic. A skill that will be evaluated in the presentation is the ability to choose what needs to be explained and what you can assume that the public knows. "Wasting" time in explaining topics that the students of the master already know is not a good use of one's time. The presentations will be held in the last week of the course. The teacher will provide a list of approximately a hundred articles (available on the web), and each student must choose an article from those.   https://dl.dropboxusercontent.com/u/6899074/TorVergata/ArticlesRoma2016.xls All articles selected are part of the course programme and they can be included in examination questions in the module exams: In general, however, there will be wide choice regarding the topics to which students might be examined in each session. The presentation in PowerPoint (or Beamer pdf) must be sent to the teacher’s email address by the deadline communicated during the course. The presentation will last no more than 18 minutes. (This limit may be reduced at 15 minutes depending on the number of presentations) Written and verbal suggestions on presentation techniques will be given during the course. Each presentation will receive a detailed individual comment from the teacher, and, subjected to the student’s consent, it will be videotaped and uploaded on the YouTube website For more detailed rules, see https://dl.dropboxusercontent.com/u/6899074/torvergata/europeanpublic%20policy/Presentation%20Rules.docx

Public economics textbooks Myles-Hindricks Intermediate PE (used here) second edition 2013, little new (some behavioral ecs) with respect to earlier 2005 ed. Myles PE (more advanced 1995) Atkinson Stiglitz Lectures on PE 1980, still very good. Gruber Public Finance and Public Policy 3rd Edition 2010, basic, and American Rosen and Gayer Public Finance 9th Edition. As above Leach A Course in PE (2004), more discursive (ie no boxes) Kaplow The Theory of Taxation and PE 2008. difficult: a discussion, not a textbook, useful for thinking about what other textbooks say Jha Modern PE 2nd Edition solid, standard structure (eg little on expenditure) Salanie (2002) The Economics of Taxation

Part 1: The role of the state

Part 1: The role of the state Introduction (Ch 1) Competition and efficiency, equilibrium and welfare (Chs 2 & 15) Interpersonal comparisons (Chs 12 & 10) Poverty and inequality (Ch 13) The size of the public sector (Ch 3) Theories of the public sector (Ch 4) Voting (Ch 10 – provisional)

Part 1: The role of the state There is no specific reference. The introductory Chapters of many textbooks (Gruber, Myles-Hindricks, Myles, Rosen and Gayer. More detailed information for the UK is available in Barr “The Economics of the Welfare State”. Very specific details about the UK Tax system are available is the excellent “Mirrlees Review” (http://www.ifs.org.uk/mirrleesReview). This is a very long and detailed document, and the conclusion and recommendations chapter is a good place to start. Chapter 1 in Salanie, B. (2002), The Economics of Taxation, MIT Press, contains the theoretical introduction to taxation.

Part 2: The revenue side: Taxation

Part 2: The revenue side: Taxation Commodity Taxation (Ch 14) (3 baby models (Salanie) The Revelation Principle Capital Taxation (Piketty-Saez) Tax Evasion (Chapter 16)

Part 2: The revenue side: Taxation Simple Tax Models In Chapter 2 Salanie, B. (2002), The Economics of Taxation, MIT Press, there are several simple model of taxation in increasingly less simple set-ups). Chapter 3 and 4 contain very simple models of the theory of optimal taxation. Commodity (indirect) taxation in Chapter 3 and income (direct) taxation in Chapter 4. The model are highly simplified (but with all the original message intact) versions of the original difficult contribution, Diamond and Mirrlees (AER 1971) and Mirrlees (REStuds 1971).

Part 2: The revenue side: Taxation The revelation principle Chapter 3 and 4 contain very simple models of the theory of optimal taxation. Commodity (indirect) taxation in Chapter 3 and income (direct) taxation in Chapter 4. The models are highly simplified (but with all the original message intact) versions of the original difficult contribution, Diamond and Mirrlees (AER 1971) and Mirrlees (REStuds 1971). Lecture 3 considers indirect (commodity) taxation, in chapter 3. This lecture also introduce the revelation principle. It is hard to find a simple discussion of this profound result. Mas-Colell, Whinston and Greene (Ch 23) have a very rigorous treatment. Ditto for Kreps (Ch 18). The Game theory book by Fudenberg and Tirole treats the subject from p 255.

Part 2: The revenue side: Taxation Optimal Taxation Models - Income Chapter 4 studies direct (income) taxation. The models are highly simplified (but with all the original message intact) versions of the original difficult contribution, Diamond and Mirrlees (AER 1971) and Mirrlees (REStuds 1971). An important document is the Mirrlees review. Time permitting some of its points will be touched upon (http://www.ifs.org.uk/mirrleesreview/pamphlet.pdf)

Part 3: The expenditure side: Publicly provided goods.

Part 3: The expenditure side: Publicly provided goods. Less reliance on textbooks public procurement and regulation (Laffont and Tirole) Poverty (Ch 13 & Besley and Coate REStuds) Pensions (Ch 20) Public goods and externalities (chs 5 & 6) Provision of private goods (Besley and Coate AER) Health (Blackorby & Donaldson) Education (De Fraja)

The theory of public procurement and regulation. The procurement model is from Laffont, Jean-Jacques and Jean Tirole, [1986] “Using cost observation to regulate firms”, Journal of Political Economy, 94, pp. 614-641, as presented in their book, Laffont, Jean-Jacques and Jean Tirole, [1993] A Theory of Incentives in Procurement and Regulation, The MIT Press, (Ch 1 & 2). Income transfers for poverty alleviation. Timothy Besley and Stephen Coate, “The Design of Income Maintenance Programmes”, Review of Economic Studies, 1995, 62: 187-221. And Chapter 9 in Salanie … as a side dish we can look at how rich are the rich (http://www.nber.org/papers/w15408)

Goods provided by the State Public goods. Redistribution through provision. The case of health care. Any textbook will have relevant chapters (Gruber Ch 7; Hindricks and Myles Ch 5; Rosen and Gayer, Ch 4; Atkinson and Stiglitz, Ch 16 (the notation used here is from this book); More advanced, Laffont (Fundamentals of Public Economics, Ch 2). The paper sketched are: Besley, Timothy, and Stephen Coate, [1991], "Public Provision of Public Goods and the Redistribution of Income", American Economic Review, 81 pp. 979-84. Blackorby, Charles, and David Donaldson, [1988], "Cash Versus Kind, Self-selection, and Efficient Transfers", American Economic Review, 78 pp. 691-700

Goods provided by the State General principle. Redistribution through provision. The optimal Education Policy. Arrow’s contribution, (Arrow, Kenneth J., [1971], "A Utilitarian Approach to the Concept of Equality in Public Expenditures", Quarterly Journal of Economics, 38 pp. 175-208). Sets the framework. I will deal in detail with De Fraja, Gianni, "The Design of Optimal Education Policies", The Review of Economic Studies, 69, 2002, pp 437-466. And its sister paper De Fraja, Gianni, [2005] “Reverse Discrimination and Efficiency in Education”, International Economic Review, 46, pp. 1009-1031.

Goods provided by the State Pension and the social contract (if there is time). Benabou, Roland, [2000] “Unequal Societies: Income Distribution and the Social Contract”, American Economic Review, Vol. 90, No. 1, Mar., 2000.