Public Finance
Units: 12
The purpose of Public Finance (90-736/90-435) is to provide an introduction to the theory and practice of how national, regional and local governments should and actually finance their budgets for operating and capital project purposes. To accomplish this, the course reviews: i] rationales for government intervention in the market place, ii] analyzes methods of resolving conflicts over the size of the public sector budget, iii] extensively analyzes the rationales and issues of various types of tax revenue, and iv] reviews the effects of public sector spending and taxes on the aggregate economy. Throughout, Public Finance emphasizes the interplay between how current revenue policy is fashioned, and how the models and their key assumptions along with political processes interact which result in changes in current law at the federal, state, and local levels. While the examples are largely drawn from the United States, examples are also drawn from around the world. Because the subject matter of public spending and revenues can easily consume an entire academic year of study, Public Finance focuses mainly on the revenue side of the public budget. Two courses typically offered by Professor Strauss in the Spring build on Public Finance. Public Expenditure Analysis (90-774/90-474) deals with techniques for evaluating private and public expenditure and capital spending decisions. Education Finance and Policy (90-817) deals in-depth with issues surrounding multi-level government finance from US and international perspectives.
Public Finance is taught in lecture/discussion format with an emphasis on developing each student’s analytical reasoning skills. Original course lecture outlines in .doc format are maintained in Canvas, along with working Excel examples used in class, and assigned and optional readings. While Public Finance and Public Expenditure Analysis are self-contained, students who have had a semester of statistics and a semester of micro-economics at the principles or Advanced Placement levels will be more comfortable. Evaluation of student performance is based on evaluation of short-essay midterms and final exams, problem sets and class participation. Students may drop the lowest midterm and problem set grade. For more information about Professor Strauss and this course, see respectively: www.andrew.cmu.edu/user/rs9f under Teaching for the current course outline.
In public finance, students will learn how to understand how government transforms private resources into public services, how such activities affect economic decision-making (work, leisure, savings, consumption, investment), and how to turn concepts into operational rules. Students will also learn how political decision-making through voting and elections affects public and private sector resource decision-making, and how to perform public policy analysis--- predicting the direct and indirect effects of changing tax and spending laws. Major tax instruments are analyzed from multiple perspectives: vertical and horizontal equity, economic efficiency, feasibility of administration, and best and worst practices identified and discussed. In public finance, students will learn through problem sets how to: play a budget game, simulate the federal individual income tax and make inferences about revenues and equity, build simple models of real estate price behavior, how to locate, read and interpret the Internal Revenue Code, devise alternative business depreciation measures, and stabilize the US economy through simulations of FairModel.
While Public Finance is self-contained, a student who has had a first, introductory course in micro-economics, an introductory statistics course, and is comfortable using a laptop (Windows 10 or Mac) with Excel will be most comfortable. These are suggested but not required courses.