1. MSc in Economics (LM-56) - Module 8011566 Public Sector Economics and Management
Gianni De Fraja
Lecturer
Gianni De Fraja
contacts
Room P1 S31
sites.google.com/site/giannidefraja/
@giannidefraja

2. 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:

3. Module 8011566 Public Sector Economics and Management
list of links
Powerpoint of the slides
Pdf of the slides

4. Module 8011566 Public Sector Economics and Management
list of links
Exercises
Articles available for presentations (provisional!! These articles are for last year new ones
will be added)
Past presentations (high marks only)
(sheet 2)
To see the video enter the YouTube Code (column M) in the search box in youtube

5. 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.

6. 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

7. 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

8. 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.

9. 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.  
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 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

10. 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 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

11. Part 1: The role of the state

12. 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)

13. 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” ( 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.

14. Part 2: The revenue side:
Taxation

15. 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)

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).

17. 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.

18. 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 (

19. Part 3: The expenditure side:
Publicly provided goods.

20. 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)

21. 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 , 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:
And Chapter 9 in Salanie
… as a side dish we can look at how rich are the rich (

22. 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
Blackorby, Charles, and David Donaldson, [1988], "Cash Versus Kind, Self-selection, and Efficient Transfers", American Economic Review, 78 pp

23. 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 ). 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
And its sister paper
De Fraja, Gianni, [2005] “Reverse Discrimination and Efficiency in Education”, International Economic Review, 46, pp

24. 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.