General Objectives

In modern economies, more than a third (and sometimes more than half) 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 discuss how to design some important classes of public policies, like education, health insurance and social security. 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 the ultra-rich and multinational corporations.

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 30% of the course average each. (Learning Objectives 1 and 2.)
  2. A group presentation, covering a JEP paper: 20% of the average. (Learning Objectives 3 and 4.)
  3. Two argumentative essays (opinion articles) with peer correction (6500 characters): each one worth 10% of the grade average. 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.)
  4. One exercise list: up to one point (extra credit) to the final grade. (Learning objective 2.) [Exercise List]

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. Sistema USP de Acolhimento, Registro e Responsabilização para assédio, violência, discriminações e outras violações de direitos humanos (SUA), also by the phone number: (11) 3091-5001.

Professor

My name is Pedro Forquesato, I am an associate professor in the Department of Economics at FEA/USP and a researcher at LabPub. More information about me can be found in my website. My area of expertise is in applied microeconomics, with a focus on public sector economics. In 2025, I teach public economics (this course), principles of microeconomics and and game theory (all at the undergraduate level).

Contact

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

Policies and regulations

Classes. Classes will be on Mondays from 7:30pm to 9:10pm and Wednesdays from 9:20pm to 11pm in classroom XXX in FEA 1.

Communication. All the course’s official communication will be done through Moodle, including lists, grades, attendance, assessments and announcements. The course assumes that the student frequently accesses the platform and checks 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 disregarded to 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 exams are individual and closed-book, except when noted otherwise and in the specific conditions noted. 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 grading 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 allow grading revisions. There are no requests for final grade revision. [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), chapter 8. Atkinson and Stiglitz (2015), chapter 11. [Slides]
  2. Externalities: Gruber (2016), chapters 5 and 6. [Slides]
  3. Public goods and education: Gruber (2016), chs. 7, 10 and 11, Acemoglu and Robinson (2013). [Slides]
  4. Social security and health: Gruber (2016), chapters 12 and 13. [Slides]

First seminar night: papers [2], [6], and [7]: 15/09. [Grading rubric]

  1. Social assistance: Gruber (2016), chapter 17, Banerjee, Niehaus, and Suri (2019). [Slides]

Midterm exam: 29/09.

  1. Introduction to taxation: Gruber (2016), chapter 18, Kleven (2014). [Slides]
  2. Tax incidence, deadweight loss, and consumption taxation: Gruber (2016), chs. 19 and 20. [Slides]
  3. Labor income taxes: Gruber (2016), chapter 21. [Slides]

Second seminar night: papers [1], [3] and [4]: 13/10. [Grading rubric]

  1. Taxation on savings: Gruber (2016), chapter 22. [Slides]
  2. Taxation on wealth: Gruber (2016), chapter 23. [Slides]
  3. Corporate taxes: Gruber (2016), chapter 24. [Slides]

Third seminar night: papers [5], [8], and [9]: 07/11. [Grading rubric]

Final exam: 01/12.

Exams from previous years (please be mindful that some previous offerings were in Portuguese and that the program of the discipline has changed substantially across the years):
[Midterm exam 2022] [Final exam 2022]
[Midterm exam 2023] [Final exam 2023]
[Midterm exam 2024] [Final exam 2024]

Retake test: January, 2026.

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. Bibliography chapters often have a section explaining the US public system. Reading of these sections is 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

Acemoglu, Daron, and James A Robinson. 2013. “Economics Versus Politics: Pitfalls of Policy Advice.” Journal of Economic Perspectives 27 (2): 173–92.
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.