Public Economics and Revenue Theory

Tax and Revenue Management October 25, 2025
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Introduction

This course delves into the theoretical underpinnings of government intervention and the raising of public funds. It explores the rationale for the state’s role in a mixed economy, focusing on market failures, public goods, and externalities. A significant portion of the course is dedicated to revenue theory, examining how governments finance their expenditures through taxation, borrowing, and other means. Participants will gain a sophisticated understanding of the economic models used to analyze fiscal policies and their consequences for resource allocation and social welfare.

Objectives

Upon completion of this course, participants will be able to:

  • Explain the core concepts of market failure and the rationale for government intervention.
  • Analyze the properties of public goods and design appropriate financing mechanisms.
  • Determine the optimal provision and financing of public services.
  • Apply welfare economics principles to evaluate fiscal policy outcomes.
  • Differentiate between various revenue sources (taxation, debt, user fees) and their economic implications.
  • Model the impact of public debt and inter-temporal budget constraints.
  • Critically assess different theories of public expenditure and its macroeconomic impact.
  • Understand the political economy factors influencing fiscal decisions.

Target Audience

  • Economists in Government and International Agencies
  • Public Finance Officials and Budget Analysts
  • Policy Researchers and Academics
  • Central Bank Economists
  • Senior Staff of Ministries of Finance and Planning
  • Professionals engaged in Fiscal Sustainability Analysis
  • Development Economists

Methodology

  • Quantitative problem-solving in welfare economics and optimal taxation
  • Group presentations on the rationale for specific public programs
  • Scenario analysis of different public debt management strategies
  • Economic modeling exercises (using simple spreadsheet models)
  • Discussions on the ethical and political dimensions of fiscal policy
  • Peer review of policy briefs on a public finance topic

Personal Impact

  • A robust theoretical foundation for analyzing government fiscal actions.
  • Mastery of quantitative tools for fiscal and public welfare analysis.
  • Ability to evaluate the efficiency and equity implications of revenue and spending policies.
  • Enhanced skills in formulating evidence-based recommendations on public finance.
  • Confidence in debating complex economic and political fiscal issues.

Organizational Impact

  • Improved accuracy in fiscal forecasting and economic modeling.
  • More efficient allocation of public resources based on welfare principles.
  • Development of sustainable and resilient public debt management strategies.
  • Strengthened organizational capacity for sophisticated policy design and evaluation.
  • Greater transparency and accountability in public expenditure decisions.

Course Outline

Unit 1: Welfare Economics and Market Failure

The Efficiency of Markets
  • Pareto efficiency and competitive equilibrium
  • The First and Second Theorems of Welfare Economics
  • Causes of market failure: imperfect competition, information asymmetry
  • The role of government in achieving economic efficiency
  • Concept of social welfare functions
  • Equity and efficiency trade-offs
Public Goods and Externalities
  • Defining public goods (non-rivalry, non-excludability)
  • The free-rider problem and non-cooperative outcomes
  • Optimal provision of public goods (Samuelson condition)
  • Analyzing positive and negative externalities
  • Policy solutions for externalities (Pigouvian taxes/subsidies, Coase Theorem)

Unit 2: Theories of Revenue Generation

Taxation as a Primary Revenue Source
  • Principles of optimal tax theory
  • Theories of tax justice (Benefit principle, Ability-to-Pay principle)
  • Efficiency costs of taxation (deadweight loss revisited)
  • Measuring the revenue productivity of different tax instruments
  • Inter-temporal effects of taxation
Non-Tax Revenue Sources
  • Public sector pricing and user charges/fees
  • Revenue from state-owned enterprises (SOEs)
  • Grants and external financing
  • Seigniorage and revenue from money creation

Unit 3: Public Expenditure Analysis

Theories of Public Spending
  • Wicksell, Lindahl, and Bowen models of public spending decisions
  • Cost-benefit analysis and project evaluation techniques
  • Public choice theories of government growth (Wagner’s Law, Peacock-Wiseman Hypothesis)
  • The political economy of budgetary process
Expenditure Programs and Social Policy
  • Analysis of social insurance and welfare programs
  • Poverty alleviation and redistributive spending
  • The economic impact of public investment (e.g., infrastructure)
  • Evaluating the efficiency and effectiveness of government programs

Unit 4: Public Debt and Fiscal Sustainability

The Economics of Public Borrowing
  • Causes and consequences of government deficits and debt
  • Inter-temporal budget constraint of the government
  • Ricardian equivalence debate and its policy implications
  • Debt dynamics and risk of sovereign default
  • Macroeconomic effects of debt financing (crowding out)

Unit 5: Fiscal Federalism and Global Public Finance

Fiscal Decentralization
  • The assignment of expenditures and revenues in a multi-level government structure
  • The theory of grants and intergovernmental transfers
  • Tax competition and coordination issues
  • Decentralization and economic efficiency
International Aspects
  • Financing global public goods (e.g., climate action, health security)
  • The role of international financial institutions (IFIs)
  • Taxation in a globalized economy (BEPS, Pillar 1 & 2)

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