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| About the Author | |
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| A Note to Professors | |
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| Introduction to Public Finance | |
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| The Role of Government in Making a Free Market Possible | |
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| Why the Free Market Usually Works Well for Consumers | |
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| Taxes, Subsidies, Regulations, and Inefficiency | |
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| Problems for the Free Market | |
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| Externalities: Chapters 2 and 6 | |
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| Public Goods: Chapter 3 | |
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| Social Insurance: Chapters 5 and 6 | |
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| Income Distribution, Taxation, and Efficiency: Chapters 7, 8, and 9 | |
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| Education: Chapter 11 | |
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| Low-Income Assistance: Chapter 12 | |
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| Problems for the Government | |
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| Political Economy: Chapter 3 | |
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| Cost-Benefit Analysis: Chapter 4 | |
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| Which Level of Government? Chapter 10 | |
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| Borrowing Instead of Taxing: Chapter 13 | |
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| Taxes and Government Spending in the United States | |
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| Summary | |
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| Key Terms | |
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| Questions | |
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| The Indifference-Curve/Budget-Line Diagram | |
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| Externalities and the Environment | |
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| The Economist's Approach to Pollution | |
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| Environmental Pollution | |
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| Coase's Prescription When Victims Are Few: Assign a Property Right | |
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| The Trade-Off between Environmental Quality and Output | |
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| The Virtues of Pollution Prices | |
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| Objections to Pollution Prices and Economists' Responses | |
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| Charging a Price versus Mandating or Subsidizing Clean Technologies | |
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| Economic Analysis of a Pollution Tax and Tradable Permits | |
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| A Pollution Tax | |
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| Tradable Permits | |
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| Applications: Acid Rain and Global Warming | |
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| Tradable Permits for Sulfur Dioxide to Reduce Acid Rain | |
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| A Carbon Tax or Tradable Permits to Reduce Global Warming | |
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| Box-Case Study: A Carbon Tax versus a Carbon Cap and Trade Program | |
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| Summary | |
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| Key Terms | |
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| Questions | |
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| Public Goods and Political Economy | |
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| The Concept of a Public Good | |
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| Nonexcludability, the Free-Rider Problem, and Taxation | |
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| Who Should Produce a Public Good? | |
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| The Island Wall | |
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| Box-Current Research: Optimal Protection against Crime | |
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| Political Economy | |
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| Political Economy on the Island | |
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| Box-Case Study: A Global Public Good: Military Protection of a Valuable World Resource | |
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| The Behavior of Government | |
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| Voting, Legislators, Policies, and Elections | |
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| Box-Why Does an Individual Citizen Vote? | |
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| Logrolling | |
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| Lobbying, Special Interests, Campaigns, Bureaucracies, and Corruption | |
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| Box-Case Study: The Politics of Subsidies and Tariffs | |
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| Public Choice, Government Failure, and Constitutions | |
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| Summary | |
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| Key Terms | |
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| Questions | |
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| Cost-Benefit Analysis | |
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| Cost-Benefit Analysis | |
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| A Private Firm | |
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| Building a Factory | |
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| Government | |
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| Building a Highway | |
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| Benefits of Improving the Safety of a Highway | |
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| Box-In the News: The 2007 Minneapolis Interstate Highway Bridge Collapse | |
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| The Value of a Statistical Life | |
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| Mistakes to Avoid | |
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| Reducing Global Warming | |
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| Uncertainty and the Risk of Catastrophe | |
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| The Social Discount Rate | |
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| Cost-Effectiveness Analysis | |
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| Box-Current Research: The Debate over the 2006 Stern Review on Global Warming | |
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| Paying for a Costly Medical Treatment | |
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| Intervening Militarily | |
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| Box-Case Study: The 2003 U.S. Military Intervention in Iraq | |
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| Summary | |
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| Key Terms | |
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| Questions | |
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| Social Security | |
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| Four Ways to Prepare for Retirement | |
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| Workers Support Retirees | |
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| Each Generation Self-Sufficient | |
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| The Rate of Return | |
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| Box-The Derivation of r* = g[subscript L] + g[subscript W] + g[subscript L]g[subscript W] When Workers Support Retirees | |
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| The Impact on the Economy | |
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| Breaking Out Is Hard to Do | |
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| Defined Benefit versus Defined Contribution | |
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| The U.S. Social Security System | |
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| Background | |
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| Description of the Current U.S. Social Security Program | |
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| The Impact on Work | |
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| The Impact on Saving, Investment, and Capital Accumulation | |
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| The Impact on Retirement | |
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| Reforming Social Security | |
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| Treating the 2040 Problem | |
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| Box-Case Study: The Clash of Two Distinguished Economists over Social Security | |
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| Making Each Generation Self-Sufficient | |
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| Collective Self-Sufficiency | |
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| Individual Self-Sufficiency: Individual Investment Accounts | |
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| Combinations and Compromises | |
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| Box-In the News: The Bush Administration's Social Security Proposal | |
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| Summary | |
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| Key Terms | |
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| Questions | |
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| Social Security | |
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| Health Insurance | |
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| Health Insurance in the United States | |
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| Principles of Health Insurance | |
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| The Genesis of Health Insurance | |
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| Starting a Health Insurance Company | |
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| Moral Hazard and Price Responsiveness | |
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| Adverse Selection and Asymmetric Information | |
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| Catastrophic Insurance | |
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| X% Insurance | |
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| The Impact of Insurance on Efficiency and Redistribution | |
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| Limitation of Price and Supply by the Insurer | |
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| Features of the Health Insurance Markets | |
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| Patients, Doctors, and the Principal-Agent Problem | |
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| Regulation by Insurers | |
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| Employer-Provided Health Insurance | |
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| Who Bears the Burden of Employer-Provided Health Insurance? | |
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| Rising Medical Expenditures | |
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| The Role of Government | |
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| Medicaid and the State Children's Health Insurance Program | |
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| Alternative Public Policies for Working Families | |
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| Medicare for Retirees | |
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| Box-Current Research: Should Some Medical Care Be Rationed? | |
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| Health Insurance in Other Countries: An International Perspective | |
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| Summary | |
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| Key Terms | |
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| Questions | |
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| Health Insurance | |
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| Tax Incidence and Inefficiency | |
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| Incidence: Who Bears the Burden | |
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| People, Not Firms, Ultimately Bear All Tax Burdens | |
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| The Distribution of the Burden Depends on the Relative Elasticities | |
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| The Distribution of the Burden Doesn't Depend on Who Writes the Check | |
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| A Tax on Wage Income | |
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| A Tax on Capital Income | |
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| General Equilibrium Tax Incidence | |
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| Inefficiency | |
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| The Efficiency Loss from a Tax on a Good | |
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| Optimal Commodity Taxation | |
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| The Efficiency Loss from a Tax on Wage Income | |
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| The Efficiency Loss from a Tax on Capital Income | |
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| A Lump-Sum Tax and the Marginal Tax Rate | |
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| The Revenue-Rate Curve | |
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| Summary | |
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| Key Terms | |
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| Questions | |
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| Tax Incidence and Inefficiency | |
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| Income Taxes | |
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| Mechanics of the U.S. Income Tax | |
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| Determining Your Income Tax | |
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| The Alternative Minimum Tax | |
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| Box-Case Study: A Brief History of the Top Income Tax Rate | |
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| Different Tax Schedules for Married Couples and Single Persons | |
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| Concepts Underlying the Income Tax | |
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| Ability to Pay | |
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| Proportional, Progressive, Regressive | |
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| Comprehensive Income | |
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| Credits versus Deductions | |
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| Should a Deduction or Credit Have a Ceiling or a Floor? | |
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| Particular Deductions, Exemptions, and Credits | |
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| Issues in Taxing Capital Income | |
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| Retirement Saving Incentives | |
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| Capital Gains | |
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| Business Income | |
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| The Corporate Income Tax | |
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| The Estate Tax | |
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| Issues in Taxing Labor Income | |
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| Household Taxation, Progressivity, and the Second Earner | |
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| A Labor Income Tax | |
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| The Payroll Tax | |
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| Summary | |
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| Key Terms | |
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| Questions | |
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| Consumption Taxes | |
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| A Retail Sales Tax | |
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| A Value-Added Tax | |
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| A Subtraction VAT | |
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| Comparing a VAT to a RST | |
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| Exemptions under a RST or a VAT | |
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| A Household Rebate with a RST or a VAT | |
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| The Flat Tax and the X Tax | |
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| A Household Consumption Tax | |
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| History of a Household Consumption Tax | |
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| Computing Household Consumption | |
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| A Progressive Consumption Tax on Very High Consumption | |
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| Replacing the Income Tax with a Consumption Tax | |
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| Impact on Saving | |
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| Impact on Efficiency Loss | |
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| Impact on the Distribution of the Tax Burden | |
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| A Consumption Tax versus a Labor Income Tax | |
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| Similarities | |
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| Differences | |
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| Which Tax is Fairest? | |
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| Regressivity | |
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| Taxing What You Take versus Taxing What You Make | |
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| The Grasshopper and the Ants | |
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| Pollution Taxes | |
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| Transportation Taxes | |
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| Health Taxes | |
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| Summary | |
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| Key Terms | |
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| Questions | |
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| State and Local Public Finance | |
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| Optimal Federalism When Household Incomes are Similar | |
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| The Tiebout Process | |
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| State Government for Local Externalities or Scale Economies | |
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| Optimal Federalism When Household Incomes Differ | |
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| Residential Location When Incomes Differ: The Separation Process | |
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| Should a City Government Try to Tax Suburbanites? | |
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| Should a City Tax Economic Activity That Occurs within the City? | |
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| Should a City Set a High Tax Rate on Affluent Residents? | |
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| The Role of State Government When People Separate by Income | |
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| Box-Case Study: Should Suburbs Help Their Central City? | |
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| The Property Tax | |
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| The Mechanics of the Property Tax | |
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| The Distribution of a Residential Property Tax across Households | |
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| Who Bears the Burden of a Residential Property Tax? | |
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| Do Renters of Housing Bear a Burden from the Property Tax? | |
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| The Burden of a Property Tax on Land | |
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| The Burden of a Property Tax on Business Firms | |
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| Arguments for the Residential Property Tax for Local Governments | |
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| Criticisms of the Residential Property Tax for Local Governments | |
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| Grants from a Higher Government to Lower Governments | |
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| Purposes of Grants | |
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| Different Grants for Different Purposes | |
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| Summary | |
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| Key Terms | |
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| Questions | |
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| State and Local Public Finance | |
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| Education | |
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| What Schools Do | |
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| Elementary and Secondary Education | |
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| Private Schools without Government | |
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| Private Schools with Vouchers from Government | |
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| Public Schools | |
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| Public Schools plus a Refundable Tax Credit for Private School Tuition | |
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| Tuition versus Taxes | |
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| The Public-Private School Tuition Gap | |
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| The Optimal Quality of a Public School | |
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| State Funding of Public Schools | |
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| State versus Local Funding of Public Schools | |
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| Improving Public Schools | |
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| Higher Education | |
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| The Costs and Benefits of Higher Education | |
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| Private Colleges without Government | |
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| Public Colleges with Tuition below Cost | |
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| Student Loans and Financial Aid | |
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| Box-Case Study: College Grants on a Postcard | |
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| Summary | |
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| Key Terms | |
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| Questions | |
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| Education | |
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| Low-Income Assistance | |
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| Federal Spending to Assist Low-Income People | |
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| Unrestricted versus Restricted Assistance | |
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| Medicaid | |
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| The Earned Income Tax Credit | |
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| Welfare | |
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| The Impact of Assistance on Poverty | |
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| Refundable Tax Credits | |
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| Unemployment Insurance | |
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| Summary | |
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| Key Terms | |
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| Questions | |
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| Low-Income Assistance | |
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| Government Borrowing | |
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| Government Debt | |
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| Deficit versus Debt | |
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| Commonsense Concern about Excessive Borrowing | |
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| The Burden of the Debt | |
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| Investment | |
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| Capital Expenditures | |
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| Government Borrowing, Interest Rates, and the Crowding Out of Investment | |
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| Balanced Budget | |
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| Disciplining Politicians with a Balanced Budget Rule | |
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| Box-Case Study: The Deficit and Interest Rates: An Estimate from U.S. Data | |
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| The Problem with an Always Balanced Budget Rule | |
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| A Normal Unemployment Balanced Budget Rule | |
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| Future Considerations | |
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| Fiscal Imbalance | |
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| Generational Accounting | |
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| Deficits, Debt, and Interest | |
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| U.S. Deficits, Debt, and Interest during the Past Half Century | |
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| Box-Deficits and Debt with Two Components of Government | |
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| The Deficit, Debt, and Interest as a Percentage of GDP | |
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| Inflation, Debt, and Deficits | |
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| The Long-Term Budget Outlook for the U.S. | |
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| Box-In the News: Is Medical Care the Primary Cause of the Long-Term Budget Problem? | |
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| Summary | |
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| Key Terms | |
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| Questions | |
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| Government Borrowing | |
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| Glossary | |
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| Index | |