This is a textbook designed for the one-semester, upper-level undergraduate economics course commonly referred to as public finance. It presents the mainstream economic perspective on the public sector, divided into five parts: introduction, public expenditure theory and policy, tax theory and policy, cost–benefit analysis, and fiscal federalism. The standard topics in each area are covered, although the emphasis may vary somewhat from any of the other mainstream undergraduate textbooks. The author has included separate chapters on applying the social welfare function, decreasing cost services, public assistance, social insurance, and taxes and transfers under asymmetric information, as well as three chapters on fiscal federalism, concluding the text with an Epilogue on behavioral public sector economics, which appears to be the new frontier in the economic analysis of the public sector.
PART I: INTRODUCTION
The Foundations of Public Sector Theory
Market Failures
The Fundamental Theorems of Welfare Economic
Appendix: Variable Factor Supplies
PART II: PUBLIC EXPENDITURE THEORY AND POLICY
The Social Welfare Function and the Quest for Distributive Justice
Applying the Social Welfare Function
Externalities: Theoretical Issues
Externalities: Policy Considerations
Nonexclusive Goods
Decreasing Cost Services: the Natural Monopolies
U.S. Transfer Payments: the Public Choice Perspective
Practical Issues in Designing Transfers to the Poor
Social Insurance: Social Security
PART III: TAX THEORY AND POLICY
The Pursuit of Equity in Taxation
Equity Issues with the Federal Personal Income Tax
Taxes and Inefficiency: the Excess Burden of Taxation
Combining Equity and Efficiency in Taxation
Taxes, Transfers, and Imperfect Information
Tax Incidence: Theoretical Issues
Tax Incidence: Applications
PART IV: COST-BENEFIT ANALYSIS
Cost-Benefit Analysis
PART V: FISCAL FEDERALISM
The Assignment of Functions amongst Governments
Efficiency and Equity Issues with Mobile Resources
Grants-in-Aid
Epilogue: A New Behavioral Public Sector Economics?