Syllabus

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Course Meeting Times

Lectures: 2 sessions / week, 1.5 hours / session

Recitations: 1 session / week, 1 hour / session

A listing of course topics can be found in the course outline below.

Description

Theory and evidence on government taxation policy. Topics include tax incidence, optimal tax theory, the effect of taxation on labor supply and savings, taxation and corporate behavior, and tax expenditure policy.

Prerequisites

The prerequisite for this course is 14.04 Intermediate Microeconomic Theory.

Texts

Although there are no required texts, the following two are strongly recommended:

Auerbach, Alan, and Martin Feldstein. Handbook of Public Economics. Vol. 3. Amsterdam, The Netherlands: North Holland, 2002. ISBN: 9780444823144.

Salanié, Bernard. Economics of Taxation. Cambridge, MA: MIT Press, 2003. ISBN: 9780262194860.

Requirements

There will be five problem sets, a required referee report, and an in-class final exam. The referee report will serve as a midterm and will cover material in sections 1-3 of the course outline. The final exam covers the entire syllabus and will be held on the last day of class, Ses #26. The recitations will cover supplementary materials and review problem sets. There will be a total of 26 lecture sessions. A listing of key dates follows below.

Public Economics Field Requirements

The Public Economics major field requirement consists of two courses: 14.471 and 14.472 (Public Economics I & II). In addition, 14.471 can be combined with any of 14.472, 14.474 (Advanced Topics in Public Economics), or 14.475 (Environmental Economics and Government Responses to Market Failure) to satisfy the requirements of a minor field.

Public Economics Seminar and Luncheon Meeting

The public economics seminar plays an important role in exposing students to current "hot topics" of research, and in permitting students to meet some of the outstanding scholars in the field. Seminars take place Monday afternoons from 4:00-5:30. The fall seminar is joint with the MIT Labor Economics seminar, and it consists primarily of presentations by students who are currently finishing their doctoral research. First and second year students intending to specialize in public economics are encouraged to attend. We also have an informal Monday luncheon where thesis writers present their work in progress. Students planning to specialize in public economics are welcome to attend.

Grading

The percentages given in the table below are approximate.

Course Outline

1. Introduction to tax analysis

   1.1 Partial equilibrium tax analysis
   1.2 The efficiency costs of taxation
   1.3 General equilibrium tax incidence
   1.4 Tax reform: income taxes vs. consumption taxes
   
   

2. Optimal commodity taxation

   2.1 Optimal commodity taxes: Ramsey and beyond
   2.2 Optimal corrective taxation
   
   

3. Taxation of labor income

   3.1 Theory of income taxation
   3.2 Empirical analysis of taxation and labor supply by Prime Age men
   3.3 Taxation and labor supply of married women
   3.4 The Earned Income Tax Credit: taxes and labor supply at low incomes
   3.5 The social security earnings test and labor supply of the elderly
   3.6 Tax rates and taxable income
   
   

4. Taxation and saving

   4.1 Background: capital income, wealth, and saving behavior
   4.2 The optimal taxation of capital
   4.3 Tax policy, rates of return, and saving
   4.4 Targeted tax subsidies to saving
   
   

5. Taxation and firm behavior

   5.1 Taxation of corporate capital: investment incentives
   5.2 Taxation and financial policy: debt vs. equity
   5.3 Taxation and financial policy: payout policy
   
   

6. Taxes and aggregate economic activity

   6.1 Optimal stochastic taxes
   6.2 Dynamic consistency issues