PUBLIC FINANCE AND PUBLIC POLICY

6 ECTS credits

School of Economics and Business
Dubrovnik International University

How should we arrange the rules of a civilised society? What are the issues we need to address and where should we look for answers? What do we mean by equality and justice in society? Can government provide a solution to these dilemmas? How do voters have their say? Is government part of the problem?

This course examines one of the most fundamental questions confronting a civilised society: what are the responsibilities and limitations of government? The question is approached from the perspectives of economics and logic and uses no difficult concepts from finance or accounting. Students will be expected to read, think and debate the issues—they will not be expected to know or learn higher mathematics.
The course begins with the (demonstrated) proposition that competitive markets are efficient. However, efficiency can sometimes be inconsistent with social justice, depending on how social justice is defined. Different concepts of social equality are discussed and the course asks when a society should forego the economic freedom of markets and rely instead on the public finance and public policy of government?
The course puts a heavy emphasis on positive questions in public finance—asking what we predict will happen when voters and taxpayers delegate responsibilities to governments through public finance and public policy—in addition to normativequestions concerning what government should do. This is because it is not always possible to ensure that politicians and government behave as we would like them to. Such positive predictions might necessitate further limitations on what we can reasonably expect from government and on what responsibilities we might sensibly assign to politicians.
Institutions such as markets, the law, elections, parliament and bureaucracy are examined to reveal their strengths and weaknesses. The course will examine the scope for divergence between taxpayers’ wishes and the efficient implementation of agreed policies. Do governments really represent the people?
Models of voting are examined to reveal what democracy can realistically expect to achieve. Voting rules, parliamentary systems and checks and balances will all affect what policies are pursued.
Government has a potential role to play in the provision of public goods and in the correction of imperfect market outcomes (such as when externalities are present). Issues related to the most efficient methods of financing such government services—through taxation or government borrowing—are examined.
Finally, the course examines issues related to entitlements and efficient taxation. Why is there always disagreement between left and right on the need for and on the appropriate size of government?