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Econ 6332: Public Economics Fall 2020

Dr. Rex Pjesky

Class Days/Times/Location or Other Format: Online Office Location: 106 Killgore Research Center Office Hours: MTW 8:30-10:45 Office Phone: 806-651-2737 Email: rpjesky@wtamu.edu Social Media: Keep up with the latest happenings of your COB on Facebook and Twitter, connect with us on LinkedIn, and check out COB videos on YouTube.

Terms of Use A student's continued enrollment in this course signifies acknowledgment of and agreement with the statements, disclaimers, policies, and procedures outlined within this syllabus and elsewhere in the WTClass environment. This Syllabus is a dynamic document. Elements of the course structure (e.g., dates and topics covered, but not policies) may be changed at the discretion of the professor. WTAMU Paul and Virginia Engler College of Business Mission Statement The mission of the Paul and Virginia Engler College of Business is to provide high quality undergraduate and graduate business education with a global perspective and ethical awareness. We accomplish this through emphasis on excellence in teaching, which is strengthened by faculty scholarship and supported by professional service. Learning Objectives of the WTAMU Paul and Virginia Engler College of Business Programs The Paul and Virginia Engler College of Business (COB) at West Texas A&M University (WTAMU) seeks to prepare students in the Bachelor of Business Administration (BBA), Master of Business Administration (MBA), Master of Professional Accounting (MPA), and the Master of Science, Finance and Economics (MSFE) degree programs for careers in business and to foster their professional growth and advancement via key learning goals and objectives.

The learning objectives of the Paul and Virginia Engler College of Business are as follows:

• Leadership • Communication • Critical Thinking • Business Integration • Core Business Knowledge • Global Business Environment • Business Ethics and Corporate Governance

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Course Description This course will explore the rationale and scope of government action. It will also explore the economics of government finance. Topics will be approached mainly by reviewing the literature of public finance as found in academic publications. Course Objectives 1. Evaluate the conditions that lead to markets functioning well 2. Characterize the nature of public goods 3. Characterize the nature of various market failures 4. Compare various solutions to externalities and the efficient provision of public goods 5. Understand the economics of the political process 6. Understand theories concerning taxation (including income, consumption, wealth, and corporate taxation) 7. Use the tools of economics to evaluate policies that influence the poor, education, health care, etc. 8. Defend the use of cost benefit analysis by economists 9. Defend the use of efficiency as a policy goal Map from COB Learning Objectives to Specific Course Objectives The College of Business Learning Goals are related to the course objectives for Econ 6332, as follows:

1. Students will demonstrate their competencies in ethical decisions via written assignments and discussion forums. Objectives 8 and 9 in this course support this objective.

2. Students will illustrate and explain theories and concepts related to Economics/Public Finance (Specifically, Welfare Economics, Public Goods, Externalities, Economic Efficiency, Public Choice, Tax Policy, and cost benefit analysis.)

Course Materials (Text, calculator, etc.) All course material will be provided on the Internet or in Blackboard. Course Grading Policies

Your grade will consist of four parts: two tests (midterm and final), collaborative message boards, and weekly class assignments.

The tests will be what you’d expect. They will be essay questions. Weekly assignments will vary and are explained in detail later in the syllabus. Every few days I will post things to discuss on WTClass’ message boards. You’ll be required to respond to these discussions. These postings will vary and will depend on events in the world and how those events interact with the ideas that are part of this course.

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Course Assignment, Examination, and or Project Policies The course grade is determined by the student’s performance on the following opportunities:

Discussions on WTClass: 25 points Weekly Assignments 25 points Mid Term Exam: 25 points Final Exam: 25 points Total: 100 points

Under no circumstances will extra credit be awarded, so make the most of these opportunities. Discussion on WTCLass. Several times during the semester, I will post articles (usually gleaned from econ blogs or current news) for you to discuss. We will likely have around 2 of these per week. You do NOT have to discuss every article. When I figure your grade, I will only consider 2/3rds of the discussions in your grade. For example, if there are 51 message boards, I will consider your responses to 34 of them when figuring your grade. I understand that there will be times that each of you might not be able to engage in the class. This policy is to allow for that possibility. Message boards will be only active for 3-5 days of posting. I don’t want discussions to linger. Weekly Assignments Every week you have an assignment. Do what is asked and drop the assignment in the appropriate dropbox in WTClass. Flexibility is one of the advantages of an online class, so I am not too worried about due dates. If you get more than two weeks behind, let me know. Also know that the flexibility does not carry into the end of the semester since I have my due date for grades. Mid-Term Exam There will one midterm in this class. It will consist of essay questions and problems. Final The final will not be comprehensive. It is the same format and value as the midterm. Make up Exams No makeup exams will be offered. Course Topics - Tentative Calendar of Readings, Topics, and Due Dates See later in the syllabus for a complete list of topics.

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Additional Course Policies Please do you own work. During the first week of class, I will send several emails that detail specific course policies and outline my expectations of you. WTAMU Paul and Virginia Engler COB Student Code of Ethics Each student enrolled in COB courses accepts personal responsibility to uphold and defend academic integrity

and to promote an atmosphere in which all individuals may flourish. The COB Student Code of Ethics strives to set a standard of honest behavior that reflects well on students, the COB and West Texas A&M University. All students enrolled in business courses are expected to follow the explicit behaviors detailed in the Student Code of Ethics.

Code of Ethics

• Do not use notes, texts, solution manuals, or other aids for a quiz or exam without instructor authorization.

• Do not copy the work of others and/or allow others to view your answers or copy your work during a quiz, exam, or on homework assignments.

• Do not allow other parties to assist in the completion of your quiz, exam, homework, paper, or project when not permitted.

• Do not work with other students on projects or assignments without authorization from the course instructor.

• Properly cite and specifically credit the source of text, graphic, and web materials in papers, projects, or other assignments.

• Do not forge the signature of an instructor, advisor, dean, or another student.

• Provide truthful information for class absences when asking faculty for excused absences or for a make-up for a quiz, exam, or homework.

• Provide truthful information on your resume including work history, academic performance, leadership activities, and membership in student organizations.

• Respect the property, personal rights, and learning environment of all members of the academic community. This includes posting, sharing, and otherwise distributing the course materials outside of this course without expressed permission of the faculty, college, university, or system.

• Live up to the highest ethical standards in all academic and professional endeavors.

Students violating the Student Code of Ethics will be reported to the Dean’s office and are subject to penalties described in the West Texas A&M University Code of Student Life, which may include suspension from the University. In addition, a violator of the Student Code of Ethics may become ineligible for participation in student organizations sponsored by the COB and for recognition for College academic honors, awards, and scholarships.

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COB Student Resources Link The COB has developed a Student Resources repository (e.g., APA writing style information, business core reviews, facilities, and other helpful supplements), which can be found on the COB Website. Additionally, WTAMU has developed an Academic Study Skills information site to assist students (e.g., study habits, supplemental instruction, tutoring, writing and math skills), which can be found on the WTAMU Website. For WTAMU Writing Center information (for students needing writing assistance, guidance, and feedback), please visit their website. COB Communications Component The Paul and Virginia Engler College of Business Communication Component requires students to demonstrate knowledge of communication skills. The COB communications component is a requirement in the following courses: ACCT 4373 (Accounting Communications), BUSI 1304 (Business Communication), BUSI 3320 (Digital Collaboration and Communication), BUSI 4333 (Cross-Cultural Issues in Business Communications), BUSI 4350 (Current Issues in Management Communications), BUSI 4375 (Healthcare Communication), BUSI 4380 (Conflict Resolution and Negotiation), BUSI 4382 (Emerging Media Law), CIDM 3320 (Digital Collaboration and Communication), ECON 4370 (Economics of Health Care), FIN 3350 (Personal Financial Planning), FIN 4320 (Investments), FIN 4321 (Portfolio Theory), MGT 3335 (Organizational Behavior), MGT 4380 (Conflict Resolution and Negotiation), or MKT 3342 (Consumer Behavior). Student Travel Opportunities In multiple business courses, there may be opportunities for student travel supplemented by student fees. If you have an interest in such opportunities as they become available, please notify a faculty member. Dropping/Repeating the Course Should a student decide to drop the course, it is the student’s responsibility to be aware of the final drop dates and adhere to the WTAMU Add/Drop policy. Any student participating in the course after the WTAMU posted drop date will be considered active and a grade will be administered at the end of the course for that student. Students are charged a fee for any course attempted for a third or subsequent time at WTAMU other than a non-degree credit developmental course or exempted courses. Scholastic Dishonesty It is the responsibility of students and instructors to help maintain scholastic integrity at the University by refusing to participate in or tolerate scholastic dishonesty. Commission of any of the following acts shall constitute scholastic dishonesty. This listing is not exclusive of any other acts that may reasonably be said to constitute scholastic dishonesty: acquiring or providing information for any assigned work or examination from any unauthorized source; informing any person or persons of the contents of any examination prior to the time the examination is given in subsequent sections of the course or as a makeup; plagiarism; submission of a paper or project that is substantially the same for two courses unless expressly authorized by the instructor to do so; submission of a paper or project prepared by another student as your own. You are responsible for being familiar with the University's Academic Integrity Code, as well as the COB Student Code of Ethics listed in this document.

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Academic Integrity All work must be completed individually unless otherwise stated. Commission of any of the following acts shall constitute scholastic dishonesty: acquiring or providing information for any assigned work or examination from any unauthorized source; informing any person or persons of the contents of any examination prior to the time the exam is given in any subsequent sections of the course or as a makeup; plagiarism; submission of a paper or project that is substantially the same for two courses unless expressly authorized by the instructor to do so. For more information, see the Code of Student Life. Viewpoints/External Websites Disclaimer The views expressed in this document, web-based course materials, and/or classroom presentations and discussions are those of the professor and do not necessarily represent the views of West Texas A&M University, its faculty and staff, or its students. Views expressed by students are likewise those of the person making such statements. It is understood and expected that each individual within this course will respect and allow individual difference of opinion. Neither the professor, the COB, nor WTAMU are responsible for the content of external websites discussed in the classroom and/or linked to via online course materials, emails, message boards, or other means. Referred websites are for illustrative purposes only, and are neither warranted nor endorsed by the professor, COB, or WTAMU. Web pages change frequently, as does domain name ownership. While every effort is made to ensure proper referencing, it is possible that students may on occasion find materials to be objectionable for reasons beyond our control. Acceptable Student Behavior Classroom behavior should not interfere with the instructor’s ability to conduct the class or the ability of other students to learn from the instructional program (Code of Student Life). Unacceptable or disruptive behavior will not be tolerated. Students engaging in unacceptable behavior may be instructed to leave the classroom. Inappropriate behavior may result in disciplinary action or referral to the University’s Behavioral Intervention Team. This prohibition applies to all instructional forums, including electronic, classroom, labs, discussion groups, field trips, etc. Technology Requirements All technological requirements for the successful completion of this course are the responsibility of the student, including access to a working computer and or to a device with secure broadband Internet connection, data storage and retrieval, and state-of-the-art security. The student is responsible for all technological problems not related to WTAMU, including but not limited to equipment failures, power outages, and Internet breakdowns. Furthermore, students are responsible for all necessary technical and operational skills for completing this course, and for being familiar with WTClass (the Blackboard Learning System) both in a general sense and in a specific sense as pertaining to this course and any materials stored within. The professor is not responsible for any technical matters related to WTClass. Students must contact WTClass if they have problems accessing and/or using the WTClass environment.

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Physical or Educational Access - ADA Statement West Texas A&M University seeks to provide reasonable accommodations for all qualified persons with disabilities. This University will adhere to all applicable federal, state, and local laws, regulations, and guidelines with respect to providing reasonable accommodations as required to afford equal educational opportunity. It is the student's responsibility to register with Student Disability Services (SDS) and to contact faculty members in a timely fashion to arrange for suitable accommodations. Contact Information: Student Success Center, CC 106; phone 806-651-2335. Title IX Statement West Texas A&M University is committed to providing a learning, working, and living environment that promotes personal integrity, civility, and mutual respect in an environment free of sexual misconduct and discrimination. Title IX makes it clear that violence and harassment based on sex and gender are Civil Rights offenses subject to the same kinds of accountability and the same kinds of support applied to offenses against other protected categories such as race, national origin, etc. Harassment is not acceptable. If you or someone you know has been harassed or assaulted, you can find the appropriate resources

here: • WTAMU Title IX Coordinator-

TitleIX@wtamu.edu or call 806.651.3199 • WTAMU Counseling Services – Classroom

Center 116, or call 806.651.2340 • WTAMU Police Department – 806.651.2300, or

dial 911 • 24-hour Crisis Hotline – 800.273.8255, or

806.359.6699, or 800.692.4039 • Visit the Notalone website For more information, see the Code of Student Life.

WT Attendance Policy for Core Curriculum Classes For the purposes of learning assessment and strategic planning, all students enrolled in Core Curriculum or developmental courses at West Texas A&M University must swipe their Buff Gold cards through the card reader installed in the classroom/lab for each class/lab meeting. Evacuation Statement If you receive notice to evacuate the building, please evacuate promptly but in an orderly manner. Evacuation routes are posted in various locations indicating all exits, outside assemble area, location of fire extinguishers, fire alarm pull stations and emergency telephone numbers (651.5000 or 911). In the event an evacuation is necessary; evacuate immediately do not use elevators; take all personal belongings with you; report to outside assembly area and wait for further information; students needing assistance in the evacuation process should bring this to the attention of the instructor at the beginning of the semester. Copyright All original content in this document, all web-based course materials (be they text, audio, and/or video), and/or classroom presentations are subject to copyright provisions. No distribution without the express written consent of the author. Students are prohibited from selling (or being paid for taking) notes during this course to or by any person or commercial firm without the express written permission of the professor.

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Week One August 28th: This week I will send several welcome/orientation emails. We will also likely have some discussions. If you are new to economics, please see this: http://www.econlib.org/library/Topics/Guides/TenKeyIdeas.html Also, if you are very new to econ, you might want to spend some time watching these videos. This course assumes you have had some economics in your background. If you have not, you will likely be able to be successful in the course, but the material will not complement your current knowledge very well. Public Goods: http://www.econlib.org/library/Enc/PublicGoods.html Externalities: http://www.econlib.org/library/Enc/Externalities.html Efficiency: http://www.econlib.org/library/Enc/Efficiency.html The Scope of Government: http://www.econlib.org/library/Enc/GovernmentGrowth.html Read Hayek, The Use of Knowledge in Society. This article will give you a good foundation about what the function of markets is and will help you understand why and when markets work well. After understating the price system and market process well, then you can start to consider what the political process can do if markets don’t work very well. Economics teaches us that if goods and services have large external costs or benefits or if goods and services have significant characteristics of public goods, then there could be a role for the political process. http://www.econlib.org/library/Essays/hykKnw1.html Adapted from Michael K. Salemi “The Use of Knowledge in Society” F. A. Hayek Answer the questions and submit your answers to the appropriate drop box in Blackboard.

Discussion Questions 1.1. “The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form, but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess (H.3)” a. What does Hayek mean by a “rational economic order”? b. What does Hayek mean by “dispersed bits of incomplete and frequently contradictory knowledge”?

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c. Why is Hayek critical of the common assumptions in economic analysis that buyers, sellers, producers and the economist all know every relevant thing about the economy? d. What, in summary, does Hayek mean by the quoted statement? 1.2. What, according to Hayek, is the information needed to operate effectively in a complex market economy? a. What does Hayek mean by “planning”? b. What is the minimum information needed by economic planners and individuals? c. Does the minimum differ for planners and for individuals? How? Why? d. What happens when some individuals possess more information than other individuals? e. What does Hayek mean when he says (H.16) “…the sort of knowledge with which I have been concerned is knowledge of the kind which by its nature cannot enter into statistics and therefore cannot be conveyed to any central authority in statistical form”? f. Why, according to Hayek, can the “information problem” be solved by “the price system”? 1.3. Why, according to Hayek, is the true function of the price system the communication of information? a. Why does Hayek use the term ‘marvel’ in his discussion of the economy of knowledge? b. What does Hayek mean when he says (H.26) “…man has been able to develop that division of labor on which our civilization is based because he happened to stumble upon a method which made it possible”?

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Week Two: September 5 Read the Wikipedia article on Public Goods.

1. What are public goods? What two characteristics do they have? Why do you think economists are interested in public goods?

2. Describe private good, public good, club good, and common pool goods. 3. Describe the free rider problem. 4. Describe a “Lindahl Tax” https://en.wikipedia.org/wiki/Lindahl_tax.

Find Cooter’s book on Public Economics here: http://investigadores.cide.edu/aparicio/refpol/Cooter_StrategicConstitution_1999.pdf This is the “web version” of The Strategic Constitution by Robert Cooter. By “web version” I mean “free version.” This is a draft of a the final book published in 2000 by Princeton University Press. Read chapter 5. 1. Define “nonrivalrous” and “non-excludable.” 2. What is the difference between a pure public good and a congestable public good? 3. Make a case that currency is a public good and should be centralized. 4. What is the difference between the government regulating a spillover and pricing it. Then describe conditions when each would be better. 5. As briefly as possible, state the Coase Theorem. (You can look this up elsewhere.) 6. What are the advantages of unanimity rule over majority rule? What are the disadvantages? 7. What are the differences in block grants, tied grants and matching grants? Which would a local government prefer? Why might a federal government choose to give a different kind? 8. Define splicing and factoring.

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Week Three September 11th: Listen to this: http://www.econtalk.org/archives/2007/10/boudreaux_on_ma.html 1) What is the standard economic answer to the question of government intervention? 2) Are market failures, market failures? What are they? 3) What are free markets, really? 4) Consider the fish example’s four possible solutions. Comment on each one (do nothing, regulate/tax, create property rights, wait for a moral norm.) 5) “Public choice” is a revolutionary field of study. Why? 6) Joke: How many free market economists does it take to screw in a light bulb? None, the market will do it. How would Boudreaux respond to this joke? 7) When Boudreaux says “let the market do it,” what does he mean? 8) When Roberts says “let the market do it,” what does he mean? 9) Discuss the Byrd Amendment. 10) What is taught as perfect competition? 11) What is economic power? 12) Power is constrained by competition. Explain. 13) Power is constrained by regulation. Explain. 14) Why is antitrust so popular? 15) What is the origin of antitrust? 16) What is the story of antitrust you learned in history class. 17) Why might not that story be true? (Talk politics and economics.) 18) Give the story of Swift. 19) Does Boudreaux think that predatory pricing, mergers, firms getting big, “tying” behavior happens systematically harming consumers? 20) Why shouldn’t we worry about large firms and mergers? 21) Competition is not a “state” but a “process.” Explain. 22) “Capital is greedy and capital is fast.” Explain. 23) Must a firm produce mp3 players to compete with the iPod? 24) What is the only source of monopoly power? 25) Wal Mart? 26) IBM? 27) Microsoft? 28) A and P? 29) Big four auto companies? 30) Wal Mart again. 31) What would Schumpter say about our government’s attack on oil companies today?

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Find “The Strategic Consittution” by Robert Cooter here: http://investigadores.cide.edu/aparicio/refpol/Cooter_StrategicConstitution_1999.pdf Read chapter 2 about voting.

1. Do people vote more or less than they should using the self interested threoy of voting? Explain. 2. Why do people vote? 3. What do you think about low voter participation after reading this chapter? 4. Suppose the race is ONLY between Trump and Clinton. If Bernie Sander’s voter (who are considered more left leaning than the average Democrat) stay home, which direction will that shift the platform of the winner? 5. (Question 5 on page 60) Majority rule allegedly increases the government’s legitimacy and intimidates a rebellious opposition by demonstrating publicly that more citizens support the government’s policies than oppose them. Defend or criticize this proposition by using the median rule. 6. In the US, the Democratic party generally uses a “winner take all” in their primary. That is, any candidate who gets the most votes in a state wins all the delegates in that state. Republicans, however, follows a rule closer to proportional representation. That is, a candidate who gets 20% of the vote gets 20% of the delegates. If you were a candidate with a small loyal following who cared only about a single issue that had no chance of winning the nomination, but wanted your views on an issue placed in the party’s platform, would you rather be a Republican or Democrat? (question on page 63) 7. If preferences can be intransitive, what are the advantages and disadvantages of having someone set an agenda?

Week Four September 18th: Note: the word “inframarginal” means “inside of the margin.” Economists usually think “on the margin.” 1. What is a network externality? (A term that is helpful to me is “consumption externality.”) 2. This article is old (about 25 years). What networks are common today that did not exist then? (These two questions might be better answered after you have read the entire article.) 3. Why do you think the concept of network externality must be limited, according to the author? 4. What is a pecuniary externality? 5. What is a technological externality? 6. On page 140 (and other places), the author uses the term “agglomeration economies”. Define this term. 7. “Competition among such networks is certainly possible” (page 144). Briefly comment. 8. “..if transactions are relatively easy, then the existence of an externality is unlikely” (page 144). Briefly comment. 9. You may have heard that the QWERTY keyboard is inferior to other designs, such as the Dvorak keyboard. Are these stories true? Briefly explain.

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10. What are the differences between network effects and network externalities? Listen to this: http://www.econtalk.org/archives/2007/06/caplan_on_the_m.html 32) How do bad policies happen in a democracy? 33) What is Caplin’s opinion? 34) What is his evidence? 35) What is the good news? 36) What is the bad news? 37) What is the story of farm subsidies? 38) What changed Caplan’s mind? 39) Why are bad ideas “cool?” 40) Why is it a bad thing for a nomadic tribe to meet another one? 41) Why do we underestimate the social benefit of markets? 42) Why might individual intentions not matter? 43) What is “make work” bias? 44) What is Sisyphism? 45) Why shouldn’t we focus on work? 46) Why are we scared of trade and technology? 47) What is pessimistic bias? 48) How do we know economists are right? 49) Why might economists be biased? 50) What does Caplan suggest? 51) What is a theme in Caplan’s book? 52) How does Roberts contrast political decisions with the decision to buy a van? 53) What is the general attitude of a typical person about the FDA? 54) Results vs. Policy 55) What is (should be) the natural tendency of someone who is very ignorant about an issue? 56) Why would the world be fine if “ignorant” people were agnostic? 57) How is politics like a religion? 58) How does “your vote doesn’t matter” apply to politicians as well as citizens? 59) What is the difference between a market fundamentalist and a democratic fundamentalist? 60) What is the right question concerning democracy? 62) What is the advice from Caplin to economists?

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Week Five September 25st: Listen to this: Mike Munger on Choosing in Groups. Then answer these two questions from the Econtalk website.

1. Munger and Roberts, in discussing the Lewis and Clark expedition, suggest there is something "fundamentally human" about voting, particularly when its aim is to garner information in the face of uncertainty. EconLog's Bryan Caplan, however, is a proponent of the "myth of the rational voter." To what extent would Caplan agree with the assessment of Munger and Roberts in this instance? Were Lewis and Clark and their mates immune to Caplan's concerns? How reliable was the information received by Lewis and Clark via the vote they called?

2. In discussing polycentricity, Munger says, "If the decision group is larger than the size of the problem, you are going to impose, unnecessarily, a uniformity of choice when you could have a diversity of choice." Explain what this means. What decisions belong in the public sphere? Does Munger's interpretation of polycentricity help answer that question? What role does the size of the group and the geographic scope of the political unit play in this question?

Read about cost benefit analysis. Read Measuring the Value of a Statistical Life: Problems and Prospects by Oley Ashenfelter.

1. What is VSL? 2. Why is this concept distasteful? 3. Why is it necessary? 4. No question here, but you can skim over the math in the paper. 5. How does VSL play a key role in discussions of how big the traffic safety budget should be? 6. What is QALY? 7. How are VSL and QALY used in medicine? 8. Summarize the problems in measuring VSL. 9. Summarize how speed limits were used to estimate VSL.

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Week Six October 2nd Read “What do Budget Deficits Do?” by Laurence Ball and Greg Mankiw and the comment by Alan Meltzer. Answer the following questions:

1. So, what do budget deficits do? 2. According to the authors, what are the long term effects of budget deficts? 3. What is a hard landing? 4. Describe the “Debt Fairy Parable.” 5. How do the authors conclude that the debt costs the economy 6% of output? 6. Why are the welfare effect of deficits unclear? 7. What should the chance of a “hard landing” have on policy? 8. Does Allan Meltzer agree with Ball and Mankiw on the costs of budget deficits? Explain fully.

Week Seven Midterm Exam. Due October 15th at midnight. Details in Email.

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Week Eight October 16: Read “A Pure Theory of Local Expenditures” by Charles Tiebout. http://www.jstor.org/stable/1826343?seq=1#page_scan_tab_contents Here’s a good summary of Tiebout https://en.wikipedia.org/wiki/Tiebout_model 1. Summarize Tiebout’s idea. 2. Briefly describe the assumptions of the Tiebout model. 3. How does Tiebout solve the problem of preference revelation? 4. How does Tiebout solve the problem of preference aggregation? Read “Do Better Schools Mater? Parental Valuation of Elementary Education.” By Sandra Black. http://qje.oxfordjournals.org/content/114/2/577.full.pdf+html 5. What is capitalization? (This question is hard to infer directly from the reading.) 6. What is Tiebout Choice? Why does the author think an understanding of Tiebout choice is important? 7. What does the theory predict about Tiebout choice? 8. Describe the basic methodology of the author. How does she measure what she is trying to measure? (In other words, how does she use data to address her theoretical questions.) 9. What are the results? 10. What is the relationship between this paper and Tiebout’s 1956 seminal paper?

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Week Nine October 23 th: http://scholar.harvard.edu/mankiw/files/optimal_taxation_in_theory.pdf 1. Briefly describe the “standard theory of optimal taxation.” Include a statement of what the assumptions are. 2. On page 4, the paper states that economic theory easily concludes that the optimal tax is a lump sum tax. Why don’t we have that? 3. How did James Mirrlees formalize the tradeoff between efficiency and equality? Why is lack of information of the policymaker important? 4. (lesson 1) Why must the marginal tax rate schedule be tailored to the shape of the ability distribution? 5. (Lesson 2) The notion that the top marginal tax rate should be zero is an intellectual curiosity. The debate surrounding this centers on the capacity of policy makers to estimate the distribution of ability. Ability is not observable, but one alternative is to use wages as a proxy for ability. Why is this problematic, especially at the top end of the earnings distribution? 6. (Lesson 3) Evidence for (or against) having a flat or flatter marginal tax rate system is gathered and reported in this paper from simulations. What do you think about that? 7. (Lesson 4) Should redistribution increase as inequality increases? 8. (Lesson 5) Is there any “tagging” in the US tax system? Explain. What are some of the factors that would make “tagging” successful. 9 (Lesson 6) Why should the tax intermediate goods be zero? Also, taxes on final goods should be uniform. What are the exceptions. 10. (Lesson 7) What is the intuition behind a zero tax on capital? 11. (Lesson 8) Why might we want to have a tax system that taxes based on earnings history?

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Week Ten October 30th http://www.nytimes.com/2012/01/22/business/four-keys-to-a-better-tax-system-economic-view.html?_r=0 This week’s assignment is very short, since week 9 and 11 are somewhat longer than normal. Here is the assignment: Considering the what Mankiw states in week 10 and 9’s assignments, propose and defend a single tax reform.

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Week Eleven November 6th: See the attached (or provided) paper. I’ll email the paper to you. If you don’t get it, it means that you do not receive emails from me. Write a referee report. The following resources should help you learn what a referee report is and how to write one. http://www.brown.edu/Departments/Economics/Faculty/Matthew_Turner/ec2410/problems_and_exams/ref_report_help.pdf http://emet8002.readthedocs.io/en/latest/tips_report_writing.html http://users.nber.org/~nikolovp/studentresources/refreport.pdf

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Week Twelve November 13th: This week focuses on Healthcare. Listen or read to John Cochrane. http://www.econtalk.org/archives/2012/11/cochrane_on_hea.html http://faculty.chicagobooth.edu/john.cochrane/research/papers/after_aca.pdf 1. What is the distinction between health care and health insurance? Why is this distinction important? 2. What is the central problem? In other words, why do we need health insurance? 3. What does efficiency mean? How airlines become efficient? Why can’t hospitals do the same thing? 4. Why do we need government subsidies for electronic health care records? Why has health care been slow to adopt new technology? 5. How does occupational licensing increase health care costs? What needs to be done? 6. Why can’t the political process make things efficient?

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7. Why are we uneasy about the “hard fact” about health care? Why do we tolerate different quality in cars but not health care? Why does government involvement make things worse on this dimension (according to Cochrane.) 8. “Health insurance became health payment plan.” What does that mean? 9. Are most health care decisions immediate life and death? Why is this important? 10.Why do we need health insurance? 11. How do we know that the bill for healthcare have a bunch of fake numbers? 12. What is adverse selection? Why is it important in health care? Why might it NOT be a problem? 13. Why are ideas important? Listen to Kling: http://www.econtalk.org/archives/2007/11/arnold_kling_on.html 14. Why do we know that improvements in cars are “worth it?” Why can’t we say the same in health care? 15. “Much in health care is somewhere between absolutely necessary and absolutely unnecessary” Why does this make health care so difficult? 16. Why does Kling want to push the out of pocket cost ratio to about 50% of health care expenditures? 17. Why is Bayes theorem important? 18. What is Kling’s main idea? 19. What is a left turn in health care reform? What about a right turn? 20. What is the iron trilemma? How do they highlight the political tradeoffs that are difficult for the political system to make? 21. What are Kling’s two questions about single payer health care? 22. Why is Medicare the fiscal Titanic? 23. How is health insurance the opposite of homeowners insurance? Why is this a problem? Week Thirteen November 20 Education: Topic: education policy and tax policies to promote growth http://www.brookings.edu/~/media/research/files/papers/2015/10/evidence-speaks/tnvpk/expectations-of-sustained-effects-from-scaled-up-prek-tennessee-study_4.pdf 1. In a situation like this, why is a randomized trial important? 2. What do you think of this study and its results? Tax and regulation policy:

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http://johnhcochrane.blogspot.com/2015/10/economic-growth.html 1. Why is growth important? (Two reasons, one refers to the public budget, the other does not.) 2. What is the source of growth? What is the only thing that matters in the long run? Why? 3. Why does Cochrane advocate pulling weeds? Why does not policy programs follow this strategy? 4. What is the difference between environmental regulation and economic regulation? 5. What is the difference between “deregulation” and “smart regulation?” 6. What evidence backs this claim: “Regulation did not fail for being absent. Regulation failed for being ineffective.” 7. How should regulation handle the debt finance/equity finance question? 8. List some of the contradictions in energy policy. What is the simple solution? 9. Why should corporate tax rates be zero? Who pays corporate taxes? 10. Briefly describe what tax policy should be. 11. What does Cochrane think about tax expenditures? 12. Why does our political system mix goals? 13. Why is “simple” important for the tax code? 14. What is the straightforward problem and solution to our debt and deficits? 15. Cochrane would not eliminate social programs, he would design programs that eliminated disincentives. What does this mean? 16. What does Cochrane think is becoming the norm in labor because of regulation? 17. Briefly sketch out Cochran’s immigration plan. 18. Cochran advocates school vouchers as education reform. Why? 19. Why should we sweat the small stuff? 20. What would Cochran spend more money on? Final Exam. Due November 22 at midnight. Details will be announced in Email.

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* Syllabus template approved by COB Curriculum Committee May 2019. Annual review of the syllabus is a formal part of the COB continuous improvement process.