PUBLIC ECONOMICS

Semester and Year Offered:

Course Coordinator and Team: Dr Robin Singhal

Email of course coordinator: rsinghal[at]aud[dot]ac[dot]in

Pre-requisites: Microeconomics I & II, Macroeconomics I & II

Course Objectives/Description:

This is one of the elective courses developed with an objective to orient students about the public sector and its functioning in general and issues pertaining to the public finances in particular. The course seeks to discuss some of the most important aspects of Public Economics including the fiscal and the monetary policy. It also seeks to introduce students to various public policy institutions in India and the role played by them in the present context. On the whole, the course lays the foundations in terms of the application of principles of microeconomics and macroeconomics for conducting economic analyses of public sector. The modules covered in the course facilitate the understanding of both micro- and macro- level arising on account of the state intervention in the functioning of the economy.

Course Outcomes:

On successful completion of this course students will be able to

1. Adapt their micro- and macro-level understanding of economic system & critically evaluate the scope and nature of public intervention & public provision of goods and services.
2. Explain the role of public policy in general and fiscal functions in particular.
3. Discuss the basic tenets of tax structure and assess associated economic issues of policy relevance.
4. Outline the terminology of budget documents and examine its relevance for the functioning of the economy as a whole.
5. Identify the ongoing public policy debates and assess the scope of further study in the area of public economics.

Brief description of modules/ Main modules:

1. Introduction: This module covers the meaning and scope of public economics & public policy, and introduces the approaches of economic analysis such as positive, normative. Several key approaches such as traditional, public choice and behavioural are introduced..
2. Public Economics and Efficiency: In view of the limitations of market mechanism, this module revisits the concept of efficiency and Pareto optimality and underscores the importance of public sector in this regard.
3. Collective decision making:meaning of social optimality, social choice from individual values – unanimity, majority rule; social welfare function, Arrow’s impossibility theorem and its significance are covered in this module which are fundamental to the theory of welfare.
4. Principles of taxation: It covers the integral components of taxation policy - cannons of taxation, fiscal neutrality and excess burden doctrine, equity considerations (benefit principle, ability-to-pay, least aggregate sacrifice, maximum social advantage), certainty, evidence, administrative efficiency.
5. Tax Structure: This module introduces students to the requirements of a good tax structure and discusses in detail - tax rates (progressive, proportional and regressive); choice of tax base – income, consumption and wealth and the theme of optimal taxation.
6. Tax incidence and Effects of taxation: Concept and measures of tax incidence are introduced. This module draws attention to the phenomenon of Tax shifting and discusses economic factors influencing it.
7. Public policy: Issues in fiscal federalism in general and the crucial aspects such as fiscal imbalances – vertical and horizontal are covered in particular.
8. Institutional mechanism: The Finance commission – significance, its power and functions, recent recommendations pertaining to centre-state financial relations are covered.

Assessment Details with weights:

Mid-Semester (40%), End Semester Examination (40%), Class Presentations (20%)

Reading List:

1. Musgrave, R. A., Musgrave, P. B., & Bird, R. M. (1989). Public finance in theory and practice (Vol. 5). New York: McGraw-Hill
2. Cullis, J., Jones, P., & Jones, P. R. (2009). Public finance and public choice: analytical perspectives. Oxford University Press

ADDITIONAL REFERENCE:

1. Mittal, A., & Naqvi, A. H. (2018). A Comparison of Fiscal Capacity of States in India: A Regression Approach. In Challenges and Issues in Indian Fiscal Federalism (pp. 31-45). Springer, Singapore
2. Stiglitz, J. E., & Rosengard, J. K. (2015). Economics of the public sector: Fourth international student edition. WW Norton & Company
3. Gruber, J. (2005). Public finance and public policy. Macmillan.
4. Myles, G. D. (1995). Public economics. Cambridge University Press.
5. Rao, M. G. (2017). Public Finance in India in the Context of India’s Development,NIPFP Working Paper Series (No. 17/219).
6. Reddy, Y. V. (2018). Fiscal Federalism in India: Emerging Issues. In Challenges and Issues in Indian Fiscal Federalism (pp. 1-6). Springer, Singapore.