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

• Exam- (02/02/2021-preliminary)-- There will be the test (18 questions), and 3 open questions, where you will have to discuss economic problems/theories. Each test question is worth 1 point and open question - 10. To pass the exam you need to earn at least 20 points. The exam will take 60 minutes.

• It is possible to upgrade final grade by half or one-grade. To do this student need to give a presentation- the list of themes and terms of presentations is below in the table. (the exam has to be passed)

• Students who send an analysis of the tax case by 27/01/2020 will receive an additional 1-4 points on the exam (the introduction to this analysis will be presented on 12/01/2020 during the lecture) (the exam has to be passed) (the case study is not obligatory)

• To pass the course student must be present at least 50% of lectures. The student who has over 50% absences will be barred from the final exam

Lecture Students presentations

2020-10-20 GK 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

2020-10-27 GK Functions and size of the welfare state. Retirement, unemployment protection, health care, etc. Welfare expenditures, aging problem. - 1.History of the welfare state – Bismarck and his reforms

- 2.Demographic changes, aging processes and level of GDP – comparison of different countries

2020-11-03 GK Criticism of the welfare state. The crisis of the welfare state and possible directions of reforms. -1. Retirement reforms and increase in the retirement age

- 2. Migration patterns around the world

2020-11-10 GK Do we need a big government. Functions of the government, governments’ expenditure trends in long run, international comparisons of expenditure trends Composition of public expenditures

2020-11-17 GK Public sector and economic growth. The impact of public sector on economy. Welfare state, savings and economic growth How government programs may affect economic growth (education, health care, environment)

2020-11-24 MS Continued from previous lecture 1. Public expenditure, deficit and debt and the performance of countries during the COVID crisis.

2. Relations between the level of taxes and economic growth – comparison of different countriesko

2020-12-01 MS Tax systems. Different tax systems used around the world, classification of countries according to the tax systems 1. Tax progressivity and labour force participation in OECD countries.

2. Wealth taxes in OECD countries.

2020-12-08 MS Tax reform trends and current tax debates. Fraud, avoidance, equity issues. Can taxes aid in non-income public goals. International aspects of taxation. 1. Should we tax Google and Facebook? How?

2. Green taxes

2020-12-15 AK The purposes and aspects of decentralization. The economics of local government function and needs. Exit&voice as a method of revealing preferences. The optimal size of local government. The structure and organization of subcentral authorities in Europe. 1-2 Organization and role of subnational governments in …(country)

(There are allowed 1or 2 presentations on this theme, but they must relate to different countries)

2020-12-22 AK Micro and macro rationale for central government control. The structure and amount of local government expenditures in OECD countries. The discussion on decentralization in education, health care, social assistance…

(one or more public services decentralization in one or more countries may be discussed)

2021-01-12 AK Revenue assignment problems. Rules and types of local revenues. Definition and causes of fiscal stress. The structure of local revenues in OECD countries.

The economics of local taxation. The characteristic of good local tax.

Property tax in European countries.

Analysis of property tax. Case study- property tax in practice.

Local governments taxes and local tax policy:

- Example of country….

(There are allowed 2 or 3 presentations on this theme, but they must relate to different countries)

2021-01-19 AK Designing fiscal equalization transfers in subnational governments. Revenue vs expenditure needs. Political challenges of designing the rules. Time consistency problem: efficiency and equalization tradeoff. If and how central governments help local governments in time of crisis. (cases, problems, discussion)

2021-01-26 MS Fiscal rules and independent fiscal institutions. Public debt post-COVID and in the zero interest rate world. Public debt in the zero interest rate world.

02.02.2021 EXAM