Economics 341 - University of Waterloo



Economics 341

Public Economics: Government Expenditure and Public Policy

Course outline and reading list

September 2012

Professor Anindya Sen

Hagey Hall, Room 241

Phone (519) 888-4567, ext. 32123

E-mail: asen@watarts.uwaterloo.ca

Website:

Class Schedule: 11:30-12:20 MWF, PAS 1241

Office hours: Monday and Wednesday 1pm – 2:20 pm. If this is not conducive to your schedule, please feel free to email me so that we can set up an appointment.

Course Structure and Grading

The premise of the course is simple. According to economic theory, resource allocation through markets should result in (with some caveats) optimal societal welfare. If this is true, then why do we see the government providing health care, protection, employment insurance and welfare benefits? Further, is society better off with government intervention? And if so how can we measure societal welfare? The course will attempt to provide a framework for answering these questions through some basic models of public expenditure, with the objective of developing problem solving skills and the ability to work with abstract theoretical models. The applied segment of the course has two objectives: (1) expose students to real world cases where economic concepts of welfare have been applied; and (2) teach students basic skills regarding the proper use and benefits of regression analysis applicable to important and interesting public policy questions. However, no prior knowledge of econometrics or ECON 321 is necessary.

Current events over the past two years offer a fascinating petri - dish to study the reasons and effects of government intervention and market failure. I will spend some time discussing recent market failures in the housing and financial sectors in the United States as well as the debate on the introduction of public health care or ‘ObamaCare’.

Finally, we will spend some time studying Canada’s Economic Stimulus Plan ().

The specific grading scheme is:

Midterm, October 17th : 25%

Assignments: 10%

Term paper (due on the last day of class): 25% (Guidelines for the paper will be distributed in class. Please note that the paper can be done in groups consisting of two. However, only single authored papers will be given an exemption for ECON 472).

Final Exam: 40%

Missed midterm: Students who do not have a relevant medical certificate will receive a mark of zero. There is no make up test. Those with a valid excuse will have their midterm weight transferred to the final. Students MUST give me their medical certificate within a week of the midterm (by October 27th).

Email Policy: Please note that I do not respond to emails regarding class content. I, however, am happy to schedule an appointment for office hours through email, in order to answer questions and clarify any doubts regarding course content and material.

Expectations and Etiquette: You are free to discuss and attempt to solve assignment problems by consulting each other. However, answers are expected to accurately reflect individual thought and effort, and copying solutions is not permitted. It is also not a good idea given that there will be similarities between assignment and test questions. Therefore, attempting to solve assignment questions individually is recommended.

On separate issues: (1) Students are welcome to bring laptop computers during class. However, they are only meant to be used in a manner that is relevant to what is being taught and discussed in lectures. Browsing of the internet is not permitted as it can be extremely distracting to me and more importantly, to other students. If relevant, I will notify you whether accessing the internet during class lectures is possible; (3) finally, cell phones and blackberries or any other electronic device that can be used for communication with other individuals or access to the internet must be switched off during class lectures.

Required Textbook

Harvey Rosen, et al., 2012, Public Finance in Canada, Fourth Canadian edition, (Toronto, McGraw-Hill Ryerson). This is the required text and I will be taking quite a bit of material from it. I will also supplement it with other sources.

Lecture Topics

1. The role of government in a market economy

2. Public goods: Market failure and efficiency

3. Welfare Analysis

(Consumer and Producer Surplus, Compensating and Equivalent Variation, The Theory of Second Best, Cash versus Kind Transfers)

# Winter, Ralph and G.F. Mathewson. “The Analysis of Efficiencies in Superior Propane: Correct Criterion Incorrectly Applied,”, Canadian Competition Record, 20(2), Fall 2000, 88-97.

4. Externalities and property rights

5. Political Economy

# Krueger, Alan (2002). “Education, Poverty, Political Violence and Terrorism: Is There a Causal Connection?” Journal of Economic Perspectives, 17(4), Fall 2003, pp. 119-44.

6. Expenditure programs I: Social Welfare Programs

7. Expenditure programs II: Unemployment Insurance

8. . Expenditure programs III: Health Care

9. Expenditure programs IV: Public Pensions

10. Market Meltdown in the United States.

11. War of the Economists: Krugman versus Cochrane

Krugman, Paul. ‘How Did Economists Get It So Wrong? ()

John Cochrane. ‘How did Paul Krugman get it so Wrong?’ ()

Note on avoidance of academic offences: All students registered in the courses of the Faculty of Arts are expected to know what constitutes an academic offense, to avoid committing academic offenses, and to take responsibility for their academic actions. When the commission of an offense is established, disciplinary penalties will be imposed in accord with Policy #71, Student Academic Discipline. For information on categories of offenses and types of penalties, students are directed to consult the summary of Policy #71, Student Academic Discipline (). If you need help in learning how to avoid offenses such as plagiarism, cheating, and double submission, or if you need clarification of aspects of the discipline policy, ask your course instructor for guidance. Other resources regarding the discipline policy are the graduate advisor and the Associate Dean of Graduate Affairs. Students who believe that they have been wrongfully or unjustly penalized have the right to grieve; refer to Policy #70, Student Grievance ()

Note for Students with Disabilities

The Office for Persons with Disabilities (OPD), located in Needles Hall, Room 1132, collaborates with all academic departments to arrange appropriate accommodations for students with disabilities without compromising the academic integrity of the curriculum. If you require academic accommodations to lessen the impact of your disability, please register with the OPD at the beginning of each academic term.

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