Content and objectives
This course is concerned with the economics of the public sector and empirical analyses of social problems. Economic agents are constantly affected by economic decisions of governments. The most noticeable way in which agents are affected is through a variety of taxes, such as income taxes, sales taxes, local taxes and social security contributions. Together they constitute a substantial proportion of income that is redistributed. Other ways in which the government interferes with economic life are by means of intervening in markets. They do so by establishing property rights (e.g., patent protection) and contract enforcement (e.g., police and courts) or by providing public goods. Examples of the latter are health care provisions, education, defence expenditures and social security. These goods are supplied to deal with market failures and inefficiencies. To support, validate and evaluate these policy interventions, sound empirical analyses are very important. Empirical analysis is useful in determining the possible effect and size of the intervention, but when carried out wrongly it can yield enormous costs to society. Hence, appropriate design and relevant techniques to evaluate and assess the effects of policy interventions is crucial.
The aim of this course is to describe in a systematic manner the principal consequences of economic activities by the government and their relationship to social objectives and to train the basics of empirical analyses of social problems.

This is done by a series of lectures in public economics based on textbook material together with a number of assignments and cases complemented by a series articles from the more advanced economic literature. The empirical part of the course trains students in the basic principles of sound empirical work. The goal is to learn basic concepts and tools and to understand credible empirical strategies to answer relevant questions. Special attention is given to the issue of causality and the link between theory and empirical analyses.


Literature

• Fehr, Ernst and Klaus Schmidt (1999), “A Theory of Fairness, Competition, and Cooperation,” Quarterly Journal of Economics, vol. 114.
• Hanushek, Eric A. (2003), “The Failure of Input-Based Schooling Policies,” Economic Journal, vol. 113.
• Maurin, Eric (2002), “The Impact of Parental Income on Early Schooling Transitions,” Journal of Public Economics, vol. 85.
• Murphy, Kevin M. and Robert Topel (2003), “The Economic Value of Medical Research.” In Measuring the Gains from Medical Research: An Economic Approach, Murphy and Topel (eds), University of Chicago Press: Chicago.
• Rabin, Matthew (1993), “Incorporating fairness into game theory and economics,” American Economic Review, vol. 83.
• Stiglitz, Joseph E. (2000), Economics of the Public Sector, WW Norton: New York.
• Weil, David (2005), “Accounting for the Effect of Health on Economic Growth,” Working Paper, Brown University, June.
• Angrist, Joshua D. and Alan B. Krueger (2001), “Instrumental Variables and the Search for Identification: From Supply and Demand to Natural Experiments.” Journal of Economic Perspectives, vol. 15, pp. 69-85.
• Angrist, Joshua D. and Alan B. Krueger (1999), “Empirical Strategies in Labor Economics.” Handbook of Labor Economics, vol. 3, pp. 1277-1366.
• Smith, Jeffrey (2000), “A Critical Survey of Empirical Methods for Evaluating Active Labor Market Policies.” Swiss Journal of Economics and Statistics, vol. 136, pp.1-22.
• STATA Manuals (available in the library of the governance school). The STATA Manuals not only provide detailed information about how to write syntax for STATA, but also gives to the point descriptions of all the statistical tools it supports.
• Wooldridge, Jeffrey M. (2000), Introductory Econometrics, South-Western College Publishing.