Government spending, taxes and public debt

Fiscal and public policies affect our lives in more than one way every day, through the provision of education and health services, taxes levied on consumption goods and income, welfare payments and the regulation of imperfect markets. This unit provides the tools to understand the economic determinants and implications of these policies.

This unit proceeds in three parts. Part one begins by looking at the principal forms of market failures that provide a justification for government interventions. It continues by examining different objectives of public and fiscal policies (e.g. the role of the government in moderating business cycle and promoting economic growth). It concludes by studying what the government does in modern societies by looking at a number of observed government activities. In part two, the unit introduces a simple yet insightful theoretical framework to rigorously study the impact of different public policy instruments on the consumption and saving decisions of an individual household. This framework is applied in the third part of the unit to derive the net economic effects of income taxation, transfer payments and government debt. The unit adopts a coherent activity-based curriculum that aims to equip you to critically evaluate a variety of fiscal and public policies adopted by modern economies at different stages of development, with a special attention to East Asian countries.