General Objectives

In modern economies, more than a third of the national product is absorbed by governments in the form of taxes; governments employ one in five workers (OECD average), and in Brazil, the government consumption accounts for nearly 20% of GDP. It is unquestionable, therefore, that studying the role of the public sector in the economy is fundamental to the understanding of modern societies.

In this course, we will study in what situations and how the government should act in the economy in order to generate the best welfare for society, and whether this indeed happens in the real world (and why not). We will also study how countries’ tax systems should be organized in order to achieve their income redistribution goals and how to approach modern difficulties in taxing wealth and large companies.

Learning Objectives

  1. Conceptually understand the consequences of government intervention in the economy, predicting in a substantiated and logically accurate way the likely consequence of public policies.
  2. Get to know the main microeconomic models used to explain government action, solving them analytically and interpreting them correctly.
  3. Arguing in a logical and informed way about the role of government and public policy, developing argumentative essays defending policy adoption and presenting papers with economic arguments.
  4. Judging the logical coherence and empirical consistency of economic arguments, critically evaluating classmates’ and academic economists’ arguments.

Learning Assessments

  1. Two exams, covering each half of the course, worth 40% of the course average each. Each exam consists of discursive questions and a few analytical exercises. (Learning Objectives 1 and 2.)
  2. A group presentation, covering a JEP paper: 20% of the average. (Learning Objectives 3 and 4.)
  3. Two exercise lists: each list turned in completely done adds 0.5 point (extra credit) to the final grade (there is no partial credit). (Learning objective 2.)
  4. Two argumentative essays (opinion articles) with peer correction (6500 characters): each one adds up to 0.5 points (extra credit). All grades will come from the student’s essay assessment, but essays will only be credited if both activities are done properly. (Learning Objectives 3 and 4.)

Not participating in an optional activity (test or list) does not restrain student participation in any other activity. The exam involves conceptual questions about the subjects covered in class and the mandatory bibliography, as well as a question chosen from among the questions in the list with some modifications.

All averages will be rounded up (relative to the final grade on Moodle) to one decimal place (and only this).

Quality of life

If you are having difficulties: 1. if this somehow interferes with your ability to take the course, let me know before the end of the course and we will work something out; 2. Contact the mental health services available in the university:

  1. Programa ECOS: Serviço de Escuta em Saúde Mental
  2. USP Contra o Assédio

Professor

My name is Pedro Forquesato, I am an assistant professor at the Department of Economics at FEA/USP and a researcher at LabPub. More information about me can be found on my website. My area of expertise is in applied microeconomics, with a research focus on public sector economics. In 2024, I teach public economics and game theory (undergraduate) and statistics and econometrics (graduate).

Contact

For specific and individual questions send me an e-mail. If you want to talk in person, you can book an appointment on the link available on Moodle. My office number is 217 at FEA2.

Please, always send me emails that are clearly identified, legible, polite and relatively short. (If the email you are writing is longer than 2 paragraphs, it might be worth talking in person.)

Policies and regulations

Classes. Classes will be on Tuesdays from 09:20 pm to 11:00 pm and Thursdays from 07:30 pm to 09:10 pm in classroom G-02 of FEA 1.

Communication. All official communication of the course from me will be done through Moodle, including lists, grades, attendance, assessments and announcements. The course assumes that students frequently access the platform and check daily the emails received.

Absences. According to USP regulations, participation in 70% of the classes is mandatory to be approved in the course. Absences will only be disconsidered with a medical certificate issued by HU/USP (Portaria GR 3740/2007).

If the student misses one exam (regardless of a medical certificate), they can replace the grade with the second evaluation without needing a justification.

Ethics. The exam is individual and without consultation. Cheating on the exam or the group assignment will automatically result in a failure in the course. Lists can be solved with help of colleagues, but they must be written individually. Essays will be submitted by students to Turnitin, and must be entirely original. (Quotations are not allowed.) Copied lists or essays with similarity will result in forfeit all optional (extra credit) course activities.

Note that these punishments will occur without prejudice to an administrative proceeding according to the Código de Ética da USP.

Reviews. Along with the correction of the exam, I will send the answer key. Revision requests must be accompanied by a precise and specific explanation of where the correction would not be consistent with the answer key and why. Lists, the group assignment and the essays do not have correction revisions. There are no grade review requests. [Artigo 81, §§1-2 do RG/USP]

Retake test. Students who have more than 70% of attendance and a grade between 3 and 5 (Portaria CoG 3583/1989) can take a second assessment (retake test), thus having their final average in the discipline as the simple arithmetic average of the course average and of the retake test grade.

Others. Any conflict with the professor that you are unable (or unwilling) to solve in person, I recommend that you contact the Ouvidoria da FEA.

Program content and schedule

In this course, we will study how the government should design its tax system in order to minimize distortions in the economy and achieve its objectives (perhaps the main one is to redistribute income), as well as how to best implement its main spending policies, namely social insurance and assistance, education and health.

All dates in the schedule are tentative and subject to change

  1. Normative economics and cost-benefit analysis: Gruber (2016), chaps. 1 and 2 (review), chap. 8. Atkinson and Stiglitz (2015), chap. 11. [Slides]
  2. Introduction to taxation: Gruber (2016), chap. 18, Kleven (2014). [Slides]
  3. Tax incidence: Gruber (2016), chap. 19, Allcott, Lockwood, and Taubinsky (2019). [Slides]
  4. Deadweight loss and optimal consumption taxation: Gruber (2016), chap. 20. [Slides]

First seminar night: papers [1], [2], and [3]: 12/09. [Grading rubric]

  1. Labor income taxes: Gruber (2016), chap. 21. [Slides]
  2. Taxation on savings: Gruber (2016), chap. 22. [Slides]

Midterm exam: 03/10. [List 1]

  1. Taxation on wealth: Gruber (2016), chap. 23, Scheuer and Slemrod (2021). [Slides]
  2. Corporate taxes: Gruber (2016), chap. 24. [Slides]

Second seminar night: papers [5], [7] and [8]: 24/10. [Grading rubric]

  1. Social security and health: Gruber (2016), chap. 12. [Slides]

Third seminar night: papers [4], [6], and [9]: 07/11. [Grading rubric]

  1. Social assistance: Gruber (2016), chap. 17, Banerjee, Niehaus, and Suri (2019). [Slides]
  2. Public provision of goods and education: Gruber (2016), chap. 7 (review) e 11. [12/11, 14/11]. [Slides]

Final exam: 28/11. [List 2]

Exams from previous years (please be mindful that previous offerings were in Portuguese and that the program of the discipline changed substantially from last year):
[Midterm exam 2022] [Final exam 2022]
[Midterm exam 2023] [Final exam 2023]

Retake test: 10/12.

The deadline for submitting lists and essays is defined on Moodle. The submission of lists and essays is also on Moodle.

Group presentation

Students will divide themselves in 9 groups and each group chooses one of the papers below to present to class in a 30 mins presentation.

Course bibliography

The textbook that we are going to follow closely is Public Finance and Public Policy, by Jonathan Gruber. The most recent edition is the 6th edition, 2019, but the course is mostly based on the 5th edition, 2016.

Review chapters are optional and they cover contents that you have already learned in prerequisite disciplines for this course, but they can be useful to recall these contents. Bibliography chapters often have a section explaining the US public system. Reading these sections is also optional.

Besides that, it is important to follow the slides and class notes because I will bring data about Brazil that are not in the book (like all the others, the textbook is American), in addition to some derivations and models that I think are important.

References

Allcott, Hunt, Benjamin B Lockwood, and Dmitry Taubinsky. 2019. “Should We Tax Sugar-Sweetened Beverages? An Overview of Theory and Evidence.” Journal of Economic Perspectives 33 (3): 202–27.
Atkinson, Anthony B, and Joseph E Stiglitz. 2015. Lectures on Public Economics: Updated Edition. Princeton University Press.
Banerjee, Abhijit, Paul Niehaus, and Tavneet Suri. 2019. “Universal Basic Income in the Developing World.” Annual Review of Economics 11: 959–83.
Gruber, Jonathan. 2016. Public Finance and Public Policy. 5th ed. Macmillan.
Kleven, Henrik Jacobsen. 2014. “How Can Scandinavians Tax so Much?” Journal of Economic Perspectives 28 (4): 77–98.
Scheuer, Florian, and Joel Slemrod. 2021. “Taxing Our Wealth.” Journal of Economic Perspectives 35 (1): 207–30.