Prof S. Craig                                                                                                                                                                    Spring, 2007

Office:  202A, M                   Hours:                    T,Th 2:30-4:00, or by appt (713-743-3812).

e-mail:                                        Web:


Textbook:              Public Finance, by David Hyman, 8th Ed, 2005

                This advanced course applies the tools of microeconomics to study the economic motivation for the existence of a public sector, as well as the ensuing economic effects of the public sector. Introductory Microeconomics 2304 is the prerequisite, (although Intermediate Microeconomics 3332 is always helpful).  See me if you have questions about your background.  In this course we will consider the justification for government intervention in the economy, and study the impacts of that intervention on both economic efficiency and fairness (equity).  All readings are out of the text, although I will feel free to supplement the text with other readings.  It will also be quite helpful for you to keep abreast of current events in public policy by reading a daily newspaper.  Class attendance is mandatory.

                The learning objectives of this class are to:

                                *make you a more creative person, and hone your critical thinking skills

                                *help you understand the society in which we live

                                *make you a more valuable employee, to increase your satisfaction, and income


Course Requirements: 1 individual homework, 2 policy memos (2-3 pages each) with teams up to 3 people, 1 midterm, and 1 final; 5%, 15%, 30%, 50%.





I.  Introduction: The size and distribution of government expenditure, Chap 1

                Why Government, given the efficient private economy, Chap 2?


II.  A1: Externalities: Private market failure, Chap 3

                a.  The extreme verison: pure public goods, Chap 4


III.  Can the Government Deliver Public Goods and Improve Efficiency?

                a.  Voting, Is it, or can it, deliver efficiency?


IV.  A2: Redistribution and Insurance

                a.  Cash and commodity assistance to individuals, Chap 7

                b.  Social (In?)Security, Chap 8

                c.  Health care, Chap 9


V.  Pay the Piper: Taxation theory, Chaps 10 and 11

                a.  Efficiency consequences

                b.  Equity (fairness) consequences


VI.  Pay Later, not now!  Analysis of Government Debt, Chap 12


VII.  Federal, State, and Local Taxes

                a.  Personal income taxes, Chap 13 and 14

                b.  Corporate income taxes, Chap 15

                c.  Sales taxes, Chap 16

                d.  Property and Inheritance Taxes, Chap 17


VIII.  Can Governments Cooperate- or Compete?  A theory of federalism, Chap 18


NB: The final exam will be Tuesday, May 8, 2-5pm. 

                There are no make-ups for missed exams without written permission prior to the original test date.  Late homework or policy memos will be accepted, with the grade reduced by one letter per day until a D, and then late papers will be accepted until the exam.