Public Economics


Course Objective

The objective of this course is to identify, justify, analyze and
evaluate policy options (Bridging Theory and Practice - Knowledge and
Application). This includes selecting suitable policy instruments, such
as taxation, subsidization, regulation or nudges, and to understand
their intended and unintended consequences. Using problem sets and
exercises, along with work on economic data will increase and deepen
understanding the role of government and the scope of economic policy.

Upon completion of the course:

(i) Students understand theoretical underpinnings, mechanisms, and
functioning of policy tools in public economics, and they appreciate
empirical dimensions of government involvement and policy (Bridging
Theory and Practice - Knowledge).
(ii) Students possess the relevant skills and master the choice and use
of appropriate empirical and modeling tools to address important public
economics questions in stylized and real-life cases and applications
(Academic and Research Skills).
(iii) Students are able to positively assess and normatively evaluate
efficacy, effectiveness, equity, and efficiency of alternative economic
policy measures in light of set objectives and relative to desirable
social goals (Bridging Theory and Practice - Application).

Course Content

Public economics (public finance) is concerned with the role of the
public sector (and in particular the government) in a market economy.
This course covers an array of topics central to economic policy making,
and will discuss underlying economic theory, but also embed it in the
context of empirical research.

Classic topics include the correction of market failure in the presence
of public goods (judicial system or national defense), as well as
distributional goals with which welfare state institutions are
concerned. Associated expenditures are mainly financed through taxation.
We discuss welfare implications of taxation of incomes, consumption, or
wealth, implied by adverse incentive effects on economic behavior
(deadweight losses, but also tax evasion). The central trade-off in
public finance is that between the dual goals of efficiency and equity;
government policy is at most second-best relative to the goal overall
maximization of social welfare. The course will also reflect on
behavioral public finance aspects that point to limitations of and
challenges for economic policy when citizens are boundedly rational and
do not react as desired to public interventions; the government may have
a role as choice architect.

Problems triggered by asymmetric information constitute another central
aspect of modern public finance, and accordingly tools will be applied
to issues in social insurance design. In addition, the course will
discuss issues of public choice and political economy when discussing
strategic lobbying and rent-seeking, or institutional structures that
reflect the provision of local and interjurisdictional public goods
(fiscal federalism). We close with aspects of international taxation
(tax avoidance by multinational firms and tax competition between

During the course both theoretical and empirical economic work in policy
context is discussed.

Teaching Methods

Lectures (including guest lecture).

Method of Assessment

Written exams (midterm and final) - individual assessment; possibly
complemented by take-home assignments, Stipulations apply (see course

Entry Requirements

Microeconomics I, Quantitative Research Methods I.


Textbooks and additional reading (articles) will be announced on Canvas.

Target Audience

Students BSc Economics and Business Economics (Economics track)

Additional Information

The course has important intersections with an array of economics
courses in, for instance, microeconomics, development economics,
regional and urban economics, and industrial organization.

Recommended background knowledge

Macroeconomics I and II. Students benefit strongly from participating in
the parallel course Microeconomics II.

General Information

Course Code E_EBE2_PE
Credits 6 EC
Period P4
Course Level 300
Language of Tuition English
Faculty School of Business and Economics
Course Coordinator dr. S. Hochguertel
Examiner dr. S. Hochguertel
Teaching Staff dr. S. Hochguertel

Practical Information

You need to register for this course yourself

Last-minute registration is available for this course.

Teaching Methods Seminar, Lecture
Target audiences

This course is also available as: