MEX 3503 Public Finance


Course Code MEX 3503
Course Title Public Finance
Number of Credits 05
Year Number 03
Medium of instruction Sinhala and English

Public Finance provides an understanding as to why markets may fail and therefore, justifies government intervention in the economy. Also, this course discusses the possibility and sources of government failure. Many graduates in the field of Public Management will be employed in a variety of public finance-related activities, including planning public expenditure projects, formulating tax schemes, public budgeting, and so forth; and this course will provide a solid understanding for the purpose.

This course focuses on the application of microeconomics framework to the analysis of the issues relating to public expenditure and taxation. While attempting to equip students with a set of analytical tools, the course tries to introduce real world issues in the arena of public finance with special reference to Sri Lanka.

After completion of the course, students should be able to analyze the issues pertaining to public finance using microeconomics theoretical framework. Particularly, the course expects to develop subject-specific knowledge and skills and cognitive skills to do the following:

  1. Justifying the need for public sector in a market economy
  2. Identifying and elaborating sources of market failure
  3. Proposing ways and means to address market failure
  4. Designing public expenditure projects complying with main principles
  5. Evaluation of public sector projects
  6. Identifying and analyzing basic properties of taxation
  7. Measuring incidence of a tax
  8. Estimating welfare impact of a tax scheme
  9. Designing a proper tax scheme
  10. Evaluating social welfare programs
Content
Main topics Sub topics Number of Hours
  1. Introduction to Public Finance
1.1.Defining public finance

1.2.Differentiating between private finance and public finance

1.3.Differentiating between free-market economy and controlled economy

1.4.The role of government in a free-market economy

1.5.Evolution of Public Finance as a scientific discipline

05
  1. Analytical framework for studying Public Finance
2.1.Introduction to microeconomic-related analytical tools

2.2.Basics of utility framework

2.3.Edgeworth diagrams, Pareto optimality, and social welfare

2.4.Efficient and fair resource allocation among people

2.5.Consumer-surplus and producer-surplus as measures of social welfare

10
  1. Market failure
3.1.Fundamental theorems of welfare economics

3.2.Introduction to market failure

3.3.Sources of market failure

3.4.Rectifying market failure

3.5.Sources of government failure

10
  1. Public goods
4.1.Defining public goods

4.2.Differentiating between public goods and private goods

4.3.Determining the optimal provision of public goods

4.4.Issues of providing public goods

10
  1. Externalities
5.1.Defining externalities

5.2.Categorization of externalities

5.3.Public and private solutions to externalities

5.4.Externalities and Coase Theorem

10
  1. Public expenditure
6.1.Measuring the size of public sector

6.2.Theories of public expenditure

6.3.Categories of public expenditure

6.4.Principles of public expenditure

6.5.Special concerns on public sector project evaluation

6.6.Public expenditure trends in Sri Lanka and other countries

10
  1. Taxation
7.1.Taxation as a source of public revenue

7.2.Principles of taxation

7.3.Tax incidence

7.4.Introduction to partial equilibrium model as an analytical tool in taxation

7.5.Differentiating between unit and ad-valorem taxes

7.6.Excess burden of a tax

7.7.Designing an optimal commodity tax scheme

7.8.Trends of taxation in Sri Lanka and other countries

7.9.Public Budgeting

10
  1. Income redistribution
8.1.Introduction

8.2.Examination of income distribution

8.3.Different social welfare functions

8.4.Impact of in-kind and cash transfers

10
Total Credit Hours 75
Mode of study Lecturing, Self-study,  and Seminar
Evaluation and assessment Final examination- 100%

1. Harvey Rosen and Ted Gayer (2008), Public Finance, McGrow-Hill publishers, New York
2. John Leach (2004), A Course in Public Economics, Cambridge University Press, UK
3. Jean hindriks and Gareth D. Myles (2006), Intermediate Public Economics, The MIT Press, London