Copyright, Princeton University Press.

No part of this book may be

distributed, posted, or reproduced in any form by digital or mechanical
means without prior written permission of the publisher.

Contents

Introduction xi
Preface xxvii
Introductory Note to the 1980 Edition

xxix

P A R T O N E T H E A N A LY S I S O F P O L I C Y
Lecture 1 Introduction: Public Economics
11 Introduction
12 Role of the Government
13 Guide to the Lectures
Note: The Public SectorStatistical Background

3
3
4
8
12

Lecture 2 Household Decisions, Income Taxation, and Labour Supply

19
21 Introduction
19
22 Income Taxation and Labour Supply
26
23 Broader Models of Labour Supply
36
24 Empirical Evidence on Labour Supply
40
25 Concluding Comments
47
Note on the Expenditure Function
48
Reading 50
Lecture 3 Taxation, Savings, and Decisions over Time
51
31 Intertemporal Decisions and Taxation
51
32 The Basic Intertemporal Model
56
33 Developments of the Model and Alternative Views
66
34 Empirical EvidenceTaxation and the Interest Elasticity of Savings
74
35 Concluding Comments
77
Reading 78
Lecture 4 Taxation and Risk-Taking
79
41 Risk-Taking and Portfolio Allocation
79
42 Effects of Taxation
85
43 Special Provisions of the Tax System
91
44 Generalization of Results
96
45 Concluding Comments
102
Note on Risk Aversion
103
Reading 104
Lecture 5 Taxation and the Firm
51 Taxes and the Firm
52 Corporation Tax and the Cost of Capital
53 Taxation and Investment

For general queries, contact webmaster@press.princeton.edu

105
105
108
117

viii

Copyright, Princeton University Press. No part of this book may be

distributed, posted, or reproduced in any form by digital or mechanical
means without prior written permission of the publisher.

C ontents

54 A Wider View of Investment

123
55 Empirical Investigation of Taxation and Investment
127
56 Concluding Comments
130
Reading 131
Lecture 6 Tax Incidence: Simple Competitive Equilibrium Model
132
61 Introduction: Tax Incidence
132
62 Static Two-Sector Model
136
63 Incidence of Corporation Tax
142
64 General Tax Incidence
147
65 Incidence in a Two-Class Economy
155
66 Numerical Applications of the Model
159
67 Concluding Comments
163
Note on the Cost Function
164
Reading 165
Lecture 7 Tax Incidence: Departures from the Standard Model
166
71 Introduction
166
72 Market Imperfections
167
73 Monopolistic Competition
172
74 Structure of Production
180
75 Non-Market-Clearing
184
76 Concluding Comments
188
Reading 188
Lecture 8 Taxation and Debt in a Growing Economy
189
81 Introduction
189
82 An Aggregate Model of Equilibrium Growth
191
83 Growth and Taxation
197
84 Taxation in a Life-Cycle Model
202
85 Burden of the National Debt
208
86 Concluding Comments
214
Reading 215
Lecture 9 Distributional Effect of Taxation and Public Expenditure
216
91 Taxation, Spending, and Redistribution
216
222
92 Modelling the Distribution of Income
93 Distributional Incidence
231
94 Empirical Studies of the Redistributive Impact of the Government
Budget 235
95 Concluding Comments
244
Reading 245
Lecture 10 Theories of the State and Public Economics
246
101 Introduction
246
102 Voting and Decisions
250
103 Administration and Bureaucracies
259
104 Power, Interest Groups, and Marxist Theories
263
105 Empirical Studies of Public Expenditure
268
Reading 274

For general queries, contact webmaster@press.princeton.edu

 Copyright, Princeton University Press. No part of this book may be

distributed, posted, or reproduced in any form by digital or mechanical
means without prior written permission of the publisher.

C ontents

ix

P art T w o T h e D es i g n o f P o l i c y
Lecture 11 Introduction to Part Two: Normative Analysis
277
111 Introduction
277
112 Normative Theories of the State
279
113 Pareto Efficiency and Welfare Economics
285
114 Standard Public Finance Objectives
291
115 Range of Government Instruments
296
Note on the Measurement of Income Inequality
302
Reading 303
Lecture 12 The Structure of Indirect Taxation
304
121 Introduction
304
122 The Ramsey Tax Problem
308
313
123 Application of the Ramsey Results
124 Partial Welfare Improvements and Tax Reform
318
125 Optimal Taxation in a Many-Person Economy
322
126 Concluding Comments
327
Reading 327
Lecture 13 The Structure of Income Taxation
328
131 Introduction
328
132 A Simple Model
331
133 Linear Income Tax
338
134 General Income Tax
343
135 Concluding Comments
352
Reading 353
Lecture 14 A More General Treatment of the Optimal Tax Problem
354
141 Introduction
354
142 Indirect Taxes and Linear Direct Taxation
357
143 Nonlinear Tax Schedules and Tax Exemptions
364
144 Taxation of Savings
370
145 Externalities in Consumption and Corrective Taxes
378
146 Concluding Comments
381
Reading 382
383
Lecture 15 Public Sector Pricing and Production
151 Introduction
383
152 Departures from Marginal Cost Pricing
386
153 Choice of Technique and Production Efficiency
394
154 CostBenefit Analysis and Social Rate of Discount
398
155 Concluding Comments
402
Reading 403
Lecture 16 Public Goods and Publicly Provided Private Goods
404
161 Introduction
404
162 Optimum Provision of Pure Public GoodsEfficiency
408
163 Optimum Provision of Pure Public GoodsDistribution
415
164 Publicly Provided Private Goods
417
165 Equilibrium Levels of Public Expenditure
424
166 Revelation of Preferences
430
Reading 434

For general queries, contact webmaster@press.princeton.edu

Copyright, Princeton University Press. No part of this book may be

distributed, posted, or reproduced in any form by digital or mechanical
means without prior written permission of the publisher.

C ontents

Lecture 17 Local Public Goods

435
171 Introduction
435
172 Optimum Provision of Local Public Goods
437
173 Market Equilibria and Optimality: Identical Individuals
446
174 Market Equilibria and Optimality: Heterogeneous Individuals
452
175 Fiscal Federalism
461
Reading 465
Lecture 18 Public Economics: Theory and Policy
181 On the Sources of Disagreement in Policy Analysis
182 Thinking about Policy: Taxation
183 Thinking about Policy: Expenditures
184 Policy Reform and Political Economy

466
466
470
476
479

Bibliography 481
Author Index

509

Subject Index

513

For general queries, contact webmaster@press.princeton.edu