Applied Public Economics - IZA

Applied Public Economics
Olivier Bargain (University College Dublin and IZA)
olivier.bargain@ucd.ie
This course is designed to acquaint MA/PhD graduate students with key issues in applied public economics,
with a particular emphasis on the positive evaluation of public policies (using reduced form or structural
models) and their normative analysis (using optimal tax theory and computer-based simulations).
Undergraduate microeconomics and econometrics are prerequisite to this course.
Part I: Public economics: the fundamentals
• The role of the state
• Partial and general equilibrium
• The classic framework: the exchange economy (Pareto efficiency; fundamental welfare theorems)
• Analyses in general equilibrium - some applications using CGE models
• Efficiency: the state as a correction of market failure (externalities, public goods)
• Equity: theoretical elements on welfare economics (social welfare, comparability and aggregation)
Part II: Analysis of income distributions and tax simulation
• Statistical tools to analyze income distribution
• Concepts and measures of inequality and poverty
• The link to welfare theory
• Simulation-based analysis of tax -benefit policies and distributional impact
Part III: Equivalence scales
• Horizontal equity
• Equivalence scales
• Formal representation of equivalence scale
• Cost of children
• Methods (Engel, Rothbarth)
• New development (indifference scales)
Part IV: Policy evaluation and causal effects
• Problem of evaluating policies
• Social experiments
• Natural experiments (difference-in-difference, fixed-effects)
• Estimators based on conditional independence (regression, matching)
• Discontinuity design
Part V: Structural analysis of tax-benefit reforms
• Econometric methods
• Labor supply modeling
• Behavioral tax reform analysis (employment and distributional effects)
Part VI: Optimal taxation
• Optimal income taxation
• Mirrlees 1971, Stiglitz 1982
• Application using discrete approach of Saez
• Implicit social preferences
• Change over time and comparison of European welfare Systems

General references
• Auerbach, A and MS Feldstein Handbook of Public Economics, Amsterdam: North-Holland (volume 1, 1986;
volume 2, 1987; volumes 3 & 4, 2002).
• Blundell, R. , and T. MaCurdy, “Labor Supply: A Review of Alternative Approaches.” In Handbook of Labour
Economics, eds. Orley Ashenfelter, and David Card, Volume 3: 1559-1695. Amsterdam: Elsevier Science,
1999
• Blundell R. and M. Costa Dias : “Alternative Approaches to Evaluation in Empirical Microeconomics”,
forthcoming in the Journal of Human Resources; also as IZA discussion paper 3800.
• Myles, G.: Public Economics, Cambridge University Press, 1995
• Lambert, P. The Distribution and Redistribution of Income: A Mathematical Analysis. (Manchester: Manchester
University Press, 2002)
• Salanié, B., The Economics of Taxation, MIT Press, London, 2003.