Public Finance Public Policy
Sixth EditionJonathan Gruber©2019
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Rigorous theory, cutting-edge empirical evidence, and abundant policy-oriented applications
We are at a pivotal point in history with respect to the role of government in the U.S, with fundamental disagreements over enormous government policies that are shaping our lives. In 2010, the most significant health care reform in decades, the Affordable Care Act, passed with no Republican support; eight years later it has been significantly weakened and under attack as alternatively too intrusive, and not sufficiently ambitious. 2017 saw the passage of an enormous piece of tax legislation, the Tax Cut and Jobs Act, with no Democratic support; a year later it remains highly unpopular and its impacts are under dispute.
These are just two examples of the debates roiling our state, local and federal governments about the proper role of government. Should the government intervene to combat global warming, and if so how? Should the federal government play a larger role in local education decisions? What should we do about the enormous long run fiscal costs of our social insurance programs such as Medicare and Social Security? And what reforms might be needed to the underlying political system that is leading to many of our current policy stalemates?
One cannot begin to answer questions such as this without a clear understanding of the proper role of government in the economy. The goal of this book is provide you with that understanding. To do so, I consider the broad range of policy areas addressed by governments in the U.S. and around the world, ranging from externalities (such as environmental damage), to public goods (such as education), to social insurance programs (including a rich discussion of the primary driver of the costs of such programs, health care spending), to taxation. This latest edition includes many of the exciting new topics of public policy debates, such as drug legalization, congestion pricing, and universal basic income.
Within each area, I explain the key policy issues in three ways to ensure the richest possible understanding. The first is through the language of economic theory, using intuitive description, graphs and mathematics to help you understand how economic tools are used to address these types of questions. The second is through examples and applications, using vivid real-world descriptions to show you how these policy issues play out in reality and the lessons we can learn from that experience.
Finally, one point I emphasize in particular in this text is an understanding of how Public Finance economists gather and interpret data. At no other time has it been so important to know the facts, to distinguish facts from falsehoods, and think critically about problems and politics. Doing so requires access to scientifically valid evidence on the public policy questions of the day. Through this book you will learn how experts in the field gather such evidence, and how it gets used to make key decisions.
Table of Contents
1 Why Study Public Finance?
2 Theoretical Tools of Public Finance
3 Empirical Tools of Public Finance
4 Budget Analysis and Deficit Financing
PART II Externalities and Public Goods
5 Externalities: Problems and Solutions
6 Externalities in Action: Environmental and Health Externalities
7 Public Goods
8 Cost-Benefit Analysis
9 Political Economy
10 State and Local Government Expenditures
PART III Social Insurance and Redistribution
12 Social Insurance: The New Function of Government
13 Social Security
14 Unemployment Insurance, Disability Insurance, and Workers’ Compensation
15 Health Insurance I: Health Economics and Private Health Insurance
16 Health Insurance II: Medicare, Medicaid, and Health Care Reform
17 Income Distribution and Welfare Programs
PART IV Taxation in Theory and Practice
18 Taxation: How It Works and What It Means
19 The Equity Implications of Taxation: Tax Incidence
20 Tax Inefficiencies and Their Implications for Optimal Taxation
21 Taxes on Labor Supply
22 Taxes on Savings
23 Taxes on Risk Taking and Wealth
24 Taxation of Business Income
25 Fundamental Tax Reform and Consumption Taxation