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Table of Contents Part 1 GETTING STARTED CHAPTER 1 INTRODUCTION Public Finance and Ideology Organic View of Government Mechanistic View of Government Viewpoint of This Book Government at a Glance The Legal Framework The Size of Government Expenditures Revenues Our Agenda Summary Discussion Questions Appendix: Doing Research in Public Finance CHAPTER 2 TOOLS OF POSITIVE ANALYSIS The Role of Theory Causation versus Correlation Experimental Studies Conducting an Experimental Study Pitfalls of Experimental Studies Observational Studies Conducting an Observational Study Pitfalls of Observational Studies Quasi-Experimental Studies Conducting a Quasi-Experimental Study Pitfalls of Quasi-Experimental Studies Conclusions Summary Discussion Questions CHAPTER 3 TOOLS OF NORMATIVE ANALYSIS Welfare Economics Pure Economy Exchange Production Economy The First Fundamental Theorem of Welfare Economics Fairness and the Second Fundamental Theorem of Welfare Economics Market Failure Market Power Nonexistence of Markets Overview Buying into Welfare Economics Summary Discussion Questions Part 2 PUBLIC EXPENDITURE: PUBLIC GOODS AND EXTERNALITIES CHAPTER 4 PUBLIC GOODS Public Goods Defined Efficient Provision of Public Goods Deriving the Efficiency Contribution Problems Achieving Efficiency The Free Rider Problem The Privatization Debate Public versus Private Provision Public versus Private Production Public Goods and Public Choice Summary Discussion Questions Appendix: Preference Revelation Mechanisms CHAPTER 5 EXTERNALITIES The Nature of Externalities Graphical Analysis Implications Conclusion Private Responses Bargaining and the Coase Theorem Mergers Social Conventions Public Responses to Externalities: Taxes and Subsidies Taxes Subsidies Public Responses to Externalities: Emissions Fees and Cap-and-Trade Programs Emissions Fee Cap-and-Trade Emission Fees versus Cap-and-Trade Command and Control Regulation The US Response Progress with Incentive-based Approaches Implications for Income Distribution Who Benefits? Who Bears the Cost? Positive Externalities A Cautionary Note Summary Discussion Questions CHAPTER 6 POLITICAL ECONOMY Direct Democracy Unanimity Rules Majority Voting Rules Logrolling Arrow?s Impossibility Theorem Representative Democracy Elected Politicians Public Employees Special Interests Other Actors Explaining Government Growth Controlling Government Growth Conclusions Summary Discussion Questions CHAPTER 7 EDUCATION Justifying Government Intervention in Education Is Education a Public Good? Does Education Generate Positive Externalities? Is the Education Market Inequitable? What Can Government Intervention in Education Accomplish? Does Government Intervention Crowd Out Private Education? Does Government Spending Improve Educational Outcomes? Public Spending and the Quality of Education Does Education Increase Earnings? New Directions for Public Education Charter Schools Vouchers School Accountability Summary Discussion Questions CHAPTER 8 COST-BENEFIT ANALYSIS Present Value Projecting Present Dollars into the Future Projecting Future Dollars into the Present Inflation Private Sector Project Evaluation Internal Rate of Return Benefit-Cost Ratio Discount Rate for Government Projects Rates Based on Returns in the Private Sector Social Discount Rate Government Discounting in Practice Valuing Public Benefits and Costs Market Prices Adjusted Market Prices Consumer Surplus Inferences from Economic Behavior Valuing Intangibles Games Cost-Benefit Analysts Play The Chain-Reaction Game The Labor Game The Double-Counting Game Distributional Considerations Uncertainty An Application: Are Reductions in Class Size Worth It? Discount Rate Costs Benefits The Bottom Line and Evaluation Use (and Nonuse) by Government Summary Discussion Questions Part 3 PUBLIC EXPENDITURE: SOCIAL INSURANCE AND INCOME MAINTENANCE CHAPTER 9 THE HEALTH CARE MARKET What?s Special about Health Care? The Role of Insurance The Role of Risk Pooling Adverse Selection in the Health Insurance Market Insurance and Moral Hazard Other Information Problems in the Health Care Market Externalities of Health Care Do We Want Efficient Provision of Health Care? Paternalism The Problem of the Uninsured High Health Care Costs Concluding Remarks Summary Discussion Questions CHAPTER 10 GOVERNMENT AND THE MARKET FOR HEALTH CARE Private Health Insurance The Implicit Subsidy for Employer-Provided Insurance The Advantages of Employer-Provided Health Insurance Employer-Provided Health Insurance and Job Lock Cost Control and Private Insurance Government Provision of Health Insurance: Medicare and Medicaid Medicare: Overview Cost Control under Medicare Medicare: Impacts on Spending and Health Medicaid: Overview Medicaid: Impacts on Health Health Care Reform Individual Mandates Health Savings Accounts Single Payer Final Thoughts Summary Discussion Questions CHAPTER 11 SOCIAL SECURITY Why Have Social Security? Consumption Smoothing and the Annuity Market Adverse Selection and the Annuity Market Other Justifications Structure of Social Security Basic Components Distributional Issues The Trust Fund Effects of Social Security on Economic Behavior Saving Behavior Retirement Decisions Implications Long-Term Stresses on Social Security Social Security Reform Maintain the Current System Privatize the System Conclusions Summary Discussion Questions CHAPTER 12 INCOME REDISTRIBUTION: CONCEPTUAL ISSUES Distribution of Income Interpreting the Distributional Data Rationales for Income Redistribution Simple Utilitarianism The Maximin Criterion Pareto Efficient Income Redistribution Nonindividualistic Views Other Considerations Expenditure Incidence Relative Price Effects Public Goods Valuing In-Kind Transfers Reasons for In-Kind Transfers Conclusion Summary Discussion Questions CHAPTER 13 EXPENDITURE PROGRAMS FOR THE POOR A Quick Look at Welfare Spending TANF Income Maintenance and Work Incentives The Basic Trade-offs Analysis of Work Incentives Work Requirements Time Limits Family Structure National versus State Administration The Earned Income Tax Credit Supplemental Security Income Medicaid Unemployment Insurance Benefits Financing Effects on Unemployment Food Stamps and Child Nutrition Housing Assistance Programs to Enhance Earnings Education Employment and Job Training Overview Summary Discussion Questions Part 4 A FRAMEWORK FOR TAX ANALYSIS CHAPTER 14 TAXATION AND INCOME DISTRIBUTION Tax Incidence: General Remarks Only People Can Bear Taxes Both Sources and uses of Income Should Be Considered Incidence Depends on how Prices Are Determined Incidence Depends on the Disposition of Tax Revenues Tax Progressiveness Can Be Measured in Several Ways Partial Equilibrium Models Unit Taxes on Commodities Ad Valorem Taxes Taxes on Factors Commodity Taxation without Competition Profits Taxes Tax Incidence and Capitalization General Equilibrium Models Tax Equivalence Relations The Harberger Model Analysis of Various Taxes Some Qualifications An Applied Incidence Study Conclusions Summary Discussion Questions CHAPTER 15 TAXATION AND EFFICIENCY Excess Burden Defined Questions and Answers Excess Burden Measurement with Demand Curves Preexisting Distortions The Excess Burden of a Subsidy The Excess Burden of Income Taxation Differential Taxation of Inputs Does Efficient Taxation Matter? Summary Discussion Questions Appendix A: Formula for Excess Burden Appendix B: Multiple Taxes and the Theory of the Second Best CHAPTER 16 EFFICIENT AND EQUITABLE TAXATION Optimal Commodity Taxation The Ramsey Rule Equity Considerations Summary Application: Taxation of the Family Optimal User Fees Overview Optimal Income Taxation Edgeworth?s Model Modern Studies Politics and the Time Inconsistency Problem Other Criteria for Tax Design Horizontal Equity Costs of Running the Tax System Tax Evasion Overview Summary Discussion Questions Part 5 THE UNITED STATES REVENUE SYSTEM CHAPTER 17 THE PERSONAL INCOME TAX Basic Structure Defining Income Items Included in H-S Income Some Practical and Conceptual Problems Evaluating the H-S Criterion Excludable Forms of Money Income Interest on State and Local Bonds Some Dividends Capital Gains Employer Contributions to Benefit Plans Some Types of Saving Gifts and Inheritances Exemptions and Deductions Exemptions Deductions Impact on the Tax Base Tax Expenditures The Simplicity Issue Rate Structure Effective versus Statutory Rates Taxes and Inflation How Inflation Can Affect Taxes Coping with the Tax/Inflation Problem The Alternative Minimum Tax Choice of Unit and the Marriage Tax Background Analyzing the Marriage Tax Treatment of International Income State Income Taxes Politics and Tax Reform Summary Discussion Questions CHAPTER 18 PERSONAL TAXATION AND BEHAVIOR Labor Supply Theoretical Considerations Some Caveats Labor Supply and Tax Revenues Overview Saving Tax-Preferred Savings Accounts Taxes and the Capital Shortage Housing Decisions Proposals for Change Portfolio Composition A Note on Politics and Elasticities Summary Discussion Questions CHAPTER 19 THE CORPORATION TAX Why Tax Corporations? Structure Employee Compensation Deducted Interest, but Not Dividends, Deducted Depreciation Deducted No Investment Tax Credit Treatment of Dividends versus Retained Earnings Efficient Tax Rate on Corporate Capital <<AU: ?Efficient? OK or ?Effective? as in previous edition?>> Incidence and Excess Burden A Tax on Corporate Capital A Tax on Economic Profits Effects on Behavior Total Physical Investment Types of Asset Corporate Finance State Corporation Taxes Taxation of Multinational Corporations Evaluation Corporation Tax Reform Full Integration Dividend Relief Summary Discussion Questions CHAPTER 20 DEFICIT FINANCE How Big Is the Debt? Interpreting Deficit, Surplus, and Debt Numbers Summing Up The Burden of the Debt Lerner?s View An Overlapping Generations Model Neoclassical Model Ricardian Model Overview To Tax or to Borrow? Benefits-Received Principle Intergenerational Equity Efficiency Considerations Macroeconomic Considerations Moral and Political Considerations Overview Summary Discussion Questions CHAPTER 21 FUNDAMENTAL TAX REFORM: TAXES ON CONSUMPTION AND WEALTH Efficiency and Equity of Personal Consumption Taxes Efficiency Issues Equity Issues Retail Sales Tax Rationalizations Efficiency and Distributional Implications of State Sales Taxes A National Retail Sales Tax <<AU: Head here OK or add question mark at end as in previous edition?>> Value-Added Tax Implementation Issues A VAT for the Untied States? Hall-Rabushka Flat Tax Cash-Flow Tax Income versus Consumption Taxation Advantages of a Consumption Tax Disadvantages of a Consumption Tax Problems with Both Systems Wealth Taxes Why Tax Wealth? Estate and Gift Taxes Rationales Provisions Reforming Estate and Gift Taxes Prospects for Fundamental Tax Reform Summary Discussion Questions PART 6 MULTIGOVERNMENT PUBLIC FINANCE CHAPTER 22 PUBLIC FINANCE IN A FEDERAL SYSTEM Background Community Formation The Teibout Model Tiebout?s Assumptions Tiebout and the Real World Optimal Federalism Disadvantages of a Decentralized System Advantages of a Decentralized System Implications Public Education in a Federal System Property Tax Incidence and Efficiency Effects Why Do People Hate the Property Tax So Much? Intergovernmental Grants Types of Grants The Flypaper Effect Intergovernmental Grants for Education Overview Summary Discussion Questions APPENDIX GLOSSARY REFERENCES AUTHOR INDEX SUBJECT INDEX
Library of Congress Subject Headings for this publication:
Finance, Public -- United States.