Syed M. Ahsan
Winter, 1995
Department of Economics

Course Description

The principal aim of this course is to examine and evaluate the important aspects of a modern fiscal (taxation and expenditure) system. For a given tax or expenditure policy, we are interested both in its impact on the economy as well as on issues of how best to design the policy itself. Part I of this course is compulsory, while part II is optional. It is expected that those interested in doing their summer research project in the area of public sector issues would find the second half useful.

Below is a outline of the topics as well as minimum readings required for each topic. The required textbook for the course is Stiglitz, J. E., Economics of the Public Sector (Norton, 1988). This book is referred below as "Text".


1. Scope and Limitations of the Public Sector in a Market Economy

Readings: Text, Chs 1, 3-4

Arrow, K.J., "The Organization of Economic Activity: Issues Pertinent to the Choice of Market vs Nonmarket Allocation", in Haveman and Margolis, eds, 1970.

2. The Revenue System
(a) Direct and Indirect Taxes
(b) Income Taxation and the Scope for Redistribution
(c) Indirect Taxation and Efficiency

Readings: Text, Chs 16, 18 (pp 445-455), 20

Atkinson, A. B., "Optimal Taxation and the Direct vs Indirect Tax Controversy", Can J. Economics, Nov 1977, 590-606.

Boadway and Bruce, Welfare Economics, (Basil Blackwell, 1984), Ch 7.

3. Public Expenditure Analysis
(a) Public Sector Pricing, Cost-Benefit and Social Rate of Discount
(b) Public Goods: Preference Revelation and Financing

Readings: Text, Chs 5-6, 10

Brown, S. J., and D. S. Sibley, The Theory of Public Utility Pricing (Cambridge, 1986), Ch 3


A. Issues in Direct Taxation
1. Effects of Taxation on Behaviour (Labour Supply, Savings, and Risk-Taking)
2. Choice of the Tax Base (Income vs Expenditure)
3. Corporate Taxation: the GE Incidence
4. Tax Evasion

Readings: Text, Chs 17-19, 21-25

Bradford, D.F., Untangling the Income Tax, (Harvard, 1986), Chs 2, 4-5.

Ahsan, S. M., "Tax Evasion", Concordia University Discussion Paper # 9404

B. Local Public Goods and Fiscal Federalism

Reading: Text, Ch 26

C. Fiscal Policy: Budget Deficits and Macro Stabilization

Reading: Text, Ch 28

CRC-Curriculum Resource Center
CEU Budapest, Hungary
Modified: May, 1996


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