Introduction to Public Finance

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The aim of the course is to present problems related with assignment, realization and interpretation of public sector activity at central and local levels. The course will provide the knowledge of the structure and interrelationships in public finance, methods of studying public sector spending and sources of financing (taxes, charges, debt instruments, transfers).

The course is intended mainly for students from two programs: Public Sector Economics (first year of the master program) and European Finance and Banking (second year of the program). The course is planned as lecture and ends with an exam.

1. Public sector in an economy. Basic concepts and models of the public sector and the welfare state. The function and the role of public sector. Public sector in Poland and other countries (2 h; GK)

2. Functions and size of the welfare state. Retirement, unemployment protection, health care, etc. Welfare expenditures, aging problem. (2 h; GK)

3. Criticism of the welfare state. The crisis of the welfare state and possible directions of reforms. (2 h; GK)

4. Do we need a big government? Functions of the government, governments’ expenditure trends in long run, international comparisons of expenditure trends. (2 h; GK)

5. Public sector and economic growth. The impact of public sector on economy. Welfare state, savings and economic growth. (4 h; GK)

6. Tax systems. Different tax systems used around the world, classification of countries according to the tax systems. (2 h; GK)

7. Tax reforms' trends and current tax debates. Short history of taxes, changes in the tax systems, international aspects of taxation. (2 h; GK)

8. The purposes and aspects of decentralization. The optimal size of local government. The structure and organization of subcentral authorities in Europe (2 h; AK)

9. The economics of local government function and needs. Exit&voice as a method of revealing preferences. Tiebout thesis. Micro and macro rationale for central government control. The structure and amount of local government expenditures in Europe. (2 h AK)

10. Revenue assignment problems. Rules and types of local revenues. Definition and causes of fiscal stress. The economics of local taxation. The characteristic of local tax. The structure of local revenues and local taxes in Europe. (3 h; AK)

11. Analysis of property tax. Case study- property tax in practice. Property tax in European countries. (2 h; AK)

12. Intergovernmental grants. Rationale for grants. Typology of grants. Economic effects of grants and median voter model. Special problems- flypaper effect, budget maximizing, public choice. Granting European local governments- analysis of structure and purposes. (3h; AK)

13. Local government borrowing. Economics of local debt; pay as you go vs pay as you use finance. Macro and micro purposes of debt limit (2h; AK)

S. J Bailey; Local government economics. Principles and practice; MacMillan 1999 r.

Publication of OECD Fiscal federalism Network

S. James, C. Nobes; The economics of taxation, Prentice Hall Europe, 1998

R. & P. Musgrave; Public finance in theory and practice; Mc Grow Hill; 1989

J. E. Stiglitz; Economics of the Public Sector; W.W. Norton & Company 2000

Upon the course completion a student is able to 1) know the basic terminology of public finance, 2) define the functions of public sector, 3) show the reasons of public (and private) sector inefficiency, 4) describe the basic functions of the welfare state and reasons of its crisis, 5) present the main directions of reforms in the public sector and tax systems, 6) analyze the reasons of the decentralization of public finances, 7) understand the limits of the decentralization, 8) explain the characteristics of the local taxation, 9) recognize the causes and the consequences of using transfers to support local governments, 10) analyze the causes and the consequences of budget deficit and public debt on the central and local level.

KW01, KW002, KW03, KW04, KW05, KU01, KU02, KU03, KU04, KK01, KK02, KK03

The evaluation of learning outcomes achieved by a student is done through a written exam (test + open questions)