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Master of Economics of Development Program

Faculty of Economics and Business
Universitas Gadjah Mada

Public Economics

Course Objective

Do government expenditures and taxation policy promotes the economic goals of society? Fiscal
Theory and Policy focuses upon issues in government outlays and taxation. This course will
analyze the impacts of government expenditures and taxation on the allocation of resources, the
distribution of economic welfare, and the level of tax revenues by using the theoretical,
empirical, and experimental tools to evaluate these impacts. Specifically, it will focus on
microeconomic theory of government expenditures and taxation. The courses combine the
normative and positive approaches. This course will also analyze the best practices in financing
the government budget.

Course Requirements

Mid-term exam: 40%

Final exam: 40%
Homework: 20%

The course syllabus provides a general plan for the course; deviations may be necessary.
Reading list will be developed throughout the course.

Textbooks

Harvey S. Rosen and Ted Gayer, Public Finance, 7th Edition (Chicago, IL: Richard D.
Irwin, Inc., 2009).
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I. Welfare Economics and the Economic Rationale for Government

II. The Theory of Pure Public Goods

III. Public and Private Provision of Public Goods

IV. Public Choice

V. Externalities

VI. Benefit-Cost Analysis

VII. Government Spending for the Poor

V1II. Analyzing the Effects of Taxes

A. Taxation and Incentives
B. Taxation, Fairness, and Incidence
C. Taxation and Excess Burden
D. Taxation and Revenues
E. Tax Administration and Compliance Costs

IX. Designing an Optimal Tax System

A. Taxation and Politics
B. "Optimal Taxation"

X. Taxes on Individual Income

A. The Structure of the Individual Income Tax
B. The Impacts of Income Taxation
1. Labor Supply
2. Saving
3. Tax Avoidance and Evasion
4. Tax Treatment of the Family

XI. Taxes on Corporate Income

A. Tax Base and Tax Structure
B. Short-run Impact of the Corporate Income Tax
C. Long-run Impact of the Corporate Income Tax

XII. Taxes on Consumption and Sales

A. Tax Base
B. Sales Tax
C. Value-Added Tax
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XIII. Taxes on Property

A. Tax Base
B. Assessment of Property Value
C. Tax Capitalization

XIV. The Theory of Local Taxes.

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