Public Economics.

Course Objective

This course has two central goals. It elaborates on the fundamental economic principles that were discussed in the first two years (especially Introduction to Economics and Environmental Economics). The focus is on

the microeconomic principles that can economically legitimize governments to intervene and that are needed to understand the behavior of the government as an actor in the economic process. Ample attention will be given to issues in the area of sustainable development, infrastructure policies, the functioning of (regional) labor markets and spatial planning. Furthermore, the course provides insights in the way in which fundamental theoretical and empirical economic results can be used in day to day policy making.

The attainment goals of this course are:

• You have a good understanding of situations in which markets can yield economically optimal outcomes and those in which markets can fail.

• You know the core tasks of the government and you know under which conditions there is a role for the government to correct market failures. You are also aware of the reasons behind government failure.

• You know the policy instruments that the government has at their disposal to influence the outcome of market processes and you are familiar with the pros and cons of the various instruments.

• You are familiar with the concept of fiscal federalism and can use it to determine what the optimal spatial level of policy making is.

• You know the key building blocks of (social) cost-benefit analysis and you can provide a high-quality evaluation of existing cost- benefit analyses using standards for good practice.

• You know the valuation techniques used by economists to perform a cost-benefit analysis.

• You know the alternatives for cost-benefit analysis to evaluate policies such as multi-criteria analysis and cost effectiveness analysis and you are aware of the pros and cons of such alternative tools.

Course Content

The free market does not always deliver socially optimal outcomes. In such situations where markets fail, there is a potential role for government intervention. At the same time, government intervention can also have (sometimes unintended) side effects. In this course, the many aspects of government intervention in the economic process including its logic and legitimacy are discussed. Topics that are central are: (i) the
role for the government in the economic process, (ii) externalities, (iii) public goods, (iv) labor markets and income distribution (interpersonal and interregional), (v) optimal taxation, (vi) fiscal federalism and subsidiarity and (vii) location choice of firms and people. Much attention will be devoted to methods for policy evaluation, with special emphasis on cost-benefit analysis.

Additional Information Teaching Methods

There will be two regular lectures (of two hours each) per week in which the course material is discussed in an interactive way. Furthermore, there is one tutorial per week (also two hours) in which assignments are discussed and students give presentations.

Method of Assessment

Written exam with open questions (60%) to be completed with a minimum score of 5.0. Presentation on topic of own choice (related to the course) and weekly assignments (40%).

Additional Information Target Audience

Third year bachelor students (following a minor with an economic orientation and basic knowledge on microeconomics).

Recommended background knowledge

Inleiding Economie (year 1) and Milieu-Economie (year 1)