Public finance describes what the government should do (e.g., provide public goods, tax efficiency), public choice explains why the government acts that way, analyzing the motivations of policymakers and voters. Public choice adds a behavioral dimension to public finance, suggesting that government actions are not always purely for public welfare but can be influenced by self-interested politicians, bureaucrats, and special interest groups. Public choice theory helps analyze the political pressures behind taxation, budgeting, and public debt management, which are the core components of public finance. Public finance often aims for efficiency and equity (e.g., via market failure corrections), whereas public choice often focuses on the potential for government failure and the need for rules to limit political interference. In essence, public finance is the "what" (policy), and public choice is the "why" (politics) of government finance. One of the more traditional subfields of economics, public finance emphasizes the function and role of government in the economy. A region's inhabitants established a formal or informal entity known as the government to carry out a variety of tasks, including providing for social requirements like education and healthcare as well as protecting the populace's private property from outside threats. Public Finance and Public Choice addresses these questions, beginning with an examination of expenditure analysis, it then moves on to look closely at taxation, before finally reflecting on some different schools of thought on public finance. The book examines the influence of behavioural analysis on public policy and also considers the economics of happiness in a new chapter.
David Eldar after receiving his Ph.D. in economics served as an assistant, then associate professor, of economics at Harvard University, and as a professor of law and economics at the University of Pennsylvania. He has served as a research associate at the National Bureau of Economic Research and as the Deputy Chief of Staff on the U.S. Joint Committee on Taxation. He joined Boalt in 1994 and holds a joint appointment in the Department of Economics. He was elected to the American Academy of Arts and Sciences in 1999. In addition to teaching, Eldar is director of the Robert D. Burch Center for Tax Policy and Public Finance, a collaboration between the law school and the Department of Economics. The center was established in 1994 by Boalt graduate Robert D. Burch to depoliticize economic policy and to support the thoughtful analysis of tax policy issues. Some of his other recent work examines the efficacy and administrative law of tax enforcement systems, as well as the fiscal implications of central bank tools of monetary policy. Galle's work frequently tests conventional wisdom about tax incentives and the allocation of public resources, offering frameworks that inform legislative and administrative choices. He writes for both legal scholars and policymakers, translating complex finance concepts into clear guidance for institutional design.
Preface 1. MARKET PERFORMANCE: POSSIBILITIES AND PRESCRIPTIONS....................................................1 1.1 Individuals, Society, and Government 1.2 Governments and Political Institutions 1.3 The Allocation of Resources Between Government and Private Use 1.4 The Mixed Economy, Markets, and Politics 1.5 Government Expenditures In The United States 1.6 The Structure of State and Local Government Expenditure 1.7 Financing Government Expenditure In The United States 1.8 Market Failure and The Functions of Government: How Much Government Is Enough? 1.9 Aging Populations: Implications For Public Finance 2. EXTERNALITIES ......................................................................................30 2.1 Private Goods and The Benchmark Model 2.2 Pure Public Goods: Definition 2.3 The Market For Public Goods 2.4 Who Should Supply Public Goods? 2.5 Mixed and Merit Goods 2.6 Possible Solutions To The Externality Problem 2.7 Global Public and Merit Goods 3. MARKET FAILURE.....................................................................................60 3.1 Market Failure: An Overview 3.2 Enter The Public Sector: General Approaches 3.3 Direct Versus Indirect Government Intervention 3.4 Note On Government Failure 4. PUBLIC EXPENDITURE...........................................................................71 4.I Introduction 4.2 Public Expenditure—Stylized Facts 4.3 Public Spending and Inclusive Growth—An Analytical Framework 4.4 Public Spending and Inclusiveness—Evidence 4.5 Policy Options 5. EFFICIENCY, MARKETS, AND GOVERNMENTS...............................100 5.1 Positive and Normative Economics 5.2 Normative Evaluation of Resource Use: The Efficiency Criterion 5.3 Markets, Prices, and Efficiency Conditions 5.4 Market Failure: A Preview of The Basis For Government Activity 5.5 Equity Versus Efficiency 5.6 Positive Analysis Trade-Off Between Equity and Efficiency 6. EXTERNALITIES AND GOVERNMENT POLICY.........................................................................122 6.1 Externalities: A Classification and Some Examples 6.2 Internalization of Externalities 6.3 Property Rights To Resource Use and Internalization of Externalities: The Coase Theorem 6.4 Environmental Protection Policies In The United States 6.5 Markets For Pollution Rights In Practice: Sulfur Dioxide Allowances, And Capping and Trading The Right To Emit 7. PUBLIC GOODS......................................................................................166 7.1 Characteristics of Public Goods 7.2 Provision of Private Goods and Public Goods: Markets and Government 7.3 The Demand For A Pure Public Good 7.4 Efficient Output of A Pure Public Good 7.5 The Free-Rider Problem 8. PUBLIC CHOICE THEORY.....................................................................192 8.1 Introduction 8.2 The Unanimity Rule and The Rawlsian Experiment 8.3 Majority Voting and The Median Voter 8.4 The Impossibility Theorem 8.5 Majority Voting and Preference Intensities 8.6 Optimal V
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