Public Finance remains the premier textbook on the normative theory of government policy, with the third edition propelling into the twenty-first century its examination of what government ought to be doing instead of what it is doing. The welfare aspects of public economics receive extensively renewed examination in this third edition. With four new chapters and other significant revisions, it presents detailed and comprehensive coverage of theoretical literature, empirical work, environmental issues, social insurance, behavioral economics, and international tax issues. With increased emphasis on the European Union, it is rigid enough for use by PhDs while being accessible to students less well trained in math. Moves skillfully from explaining normative theory to applying it in mathematically compact and precise terms Adds new chapters on social insurance, medical care, social security pensions, behavioral public economics, and international public finance Includes new pedagogical supplements, including end-of-chapter questions and answers Emphasizes European examples

Public Finance remains the premier textbook on the normative theory of government policy, with the third edition propelling into the twenty-first century its examination of what government ought to be doing instead of what it is doing. The welfare aspects of public economics receive extensively renewed examination in this third edition. With four new chapters and other significant revisions, it presents detailed and comprehensive coverage of theoretical literature, empirical work, environmental issues, social insurance, behavioral economics, and international tax issues. With increased emphasis on the European Union, it is rigid enough for use by PhDs while being accessible to students less well trained in math. Moves skillfully from explaining normative theory to applying it in mathematically compact and precise terms Adds new chapters on social insurance, medical care, social security pensions, behavioral public economics, and international public finance Includes new pedagogical supplements, including end-of-chapter questions and answers Emphasizes European examples

1;Front Cover;12;Public Finance;43;Copyright;54;Contents;65;Preface;166;Part 1 Introduction: The Content and Methodology of Public Sector Theory;186.1;Chapter 1 - Introduction to Normative Public Sector Theory;206.1.1;THE FUNDAMENTAL NORMATIVE QUESTIONS;216.1.2;GOVERNMENT EXPENDITURE THEORY: PHILOSOPHICAL UNDERPINNINGS;226.1.3;GOVERNMENT EXPENDITURE THEORY AND MARKET FAILURE;266.1.4;THE GOVERNMENT SECTOR IN THE UNITED STATES;296.1.5;THE THEORY OF TAXATION;316.1.6;FISCAL FEDERALISM;326.1.7;THE THEORY OF PUBLIC CHOICE;326.1.8;BEHAVIORAL PUBLIC FINANCE;346.1.9;SUMMARY;356.1.10;REFERENCES;366.2;Chapter 2 - A General Equilibrium Model for Public Sector Analysis;386.2.1;A BASELINE GENERAL EQUILIBRIUM MODEL;396.2.2;EFFICIENCY: THE PARETO-OPTIMAL CONDITIONS;406.2.3;EQUITY: THE SOCIAL WELFARE FUNCTION AND THE OPTIMAL DISTRIBUTION OF INCOME;416.2.4;MAXIMIZING SOCIAL WELFARE;446.2.5;POLICY IMPLICATIONS AND CONCLUSIONS;526.2.6;REFERENCES;536.3;Chapter 3 - First-Best and Second-Best Analyses and the Political Economy of Public Sector Economics;546.3.1;LUMP-SUM REDISTRIBUTIONS AND PUBLIC SECTOR THEORY;546.3.2;FIRST-BEST ANALYSIS;556.3.3;SECOND-BEST ANALYSIS;576.3.4;SIMILARITIES BETWEEN FIRST-BEST AND SECOND-BEST ANALYSES;616.3.5;THE POLITICAL ECONOMY OF THE SOCIAL WELFARE FUNCTION;626.3.6;CONCLUSION;706.3.7;REFERENCES;707;Part 2 The Theory of Public Expenditures and Taxation: First-Best Analysis;727.1;Chapter 4 - The Social Welfare Function in Policy Analysis;747.1.1;SOCIAL WELFARE AND THE DISTRIBUTION OF INCOME: THE ATKINSON FRAMEWORK;757.1.2;SOCIAL WELFARE AND CONSUMPTION: THE JORGENSON ANALYSIS;827.1.3;SOCIAL WELFARE AND SOCIAL MOBILITY;907.1.4;REFERENCES;947.2;Chapter 5 - The Problem of Externalities-An Overview;967.2.1;POLICY-RELEVANT EXTERNALITIES;967.2.2;THE ANALYSIS OF EXTERNALITIES: MODELING PRELIMINARIES;987.2.3;REFERENCES;997.3;Chapter 6 - Consumption Externalities;1007.3.1;HOW BAD CAN EXTERNALITIES BE?;1017.3.2;THE WORST OF ALL WORLDS-ALL GOODS (FACTORS) ARE PURE PUBLIC GOODS (FACTORS);1027.3.3;THE EXISTENCE OF AT LEAST ONE PURE PRIVATE GOOD;1037.3.4;NONEXCLUSIVE GOODS-THE SAMUELSON MODEL;1087.3.5;AGGREGATE EXTERNALITIES;1197.3.6;REFERENCES;1247.4;Chapter 7 - Production Externalities;1267.4.1;THE CONDENSED MODEL FOR PRODUCTION EXTERNALITIES;1277.4.2;AGGREGATE PRODUCTION EXTERNALITIES;1287.4.3;CONCLUDING COMMENTS: THE PROBLEM OF NONCONVEX PRODUCTION POSSIBILITIES;1387.4.4;REFERENCES;1397.5;Chapter 8 - An Application of Externality Theory: Global Warming;1407.5.1;CONSUMPTION-PRODUCTION EXTERNALITIES;1407.5.2;LEGISLATING POLLUTION STANDARDS;1437.5.3;DEFENSIVE ANTIPOLLUTION STRATEGIES;1507.5.4;LONG-LIVED EXTERNALITIES;1537.5.5;REFERENCES;1557.6;Chapter 9 - The Theory of Decreasing Cost Production;1567.6.1;DECREASING COST IN GENERAL EQUILIBRIUM ANALYSIS;1577.6.2;REFLECTIONS ON U.S. POLICY REGARDING DECREASING COST SERVICES: THE PUBLIC INTEREST IN EQUITY AND EFFICIENCY;1697.6.3;APPENDIX: RETURNS TO SCALE, HOMOGENEITY, AND DECREASING COST;1727.6.4;REFERENCES;1737.7;Chapter 10 - The First-Best Theory of Taxation and Transfers;1747.7.1;PUBLIC CHOICE AND PARETO-OPTIMAL REDISTRIBUTION;1757.7.2;ALTRUISM, FREE RIDING, AND CROWDING OUT OF PRIVATE CHARITY;1817.7.3;OTHER MOTIVATIONS FOR REDISTRIBUTIVE TRANSFERS;1837.7.4;REFERENCES;1857.8;Chapter 11 - Applying First-Best Principles of Taxation-What to Tax and How;1887.8.1;DESIGNING BROAD-BASED TAXES: THE ECONOMIC OBJECTIVES;1887.8.2;ABILITY TO PAY: THEORETICAL CONSIDERATIONS;1907.8.3;HORIZONTAL EQUITY;1917.8.4;VERTICAL EQUITY;1997.8.5;REFLECTIONS ON THE HAIG-SIMONS CRITERION IN PRACTICE: THE FEDERAL PERSONAL INCOME TAX;2047.8.6;THE INFLATIONARY BIAS AGAINST INCOME FROM CAPITAL2020THE ANALYSIS IN THIS SECTION FOLLOWS DIAMOND (1975), PP. 228-230.;2097.8.7;TAXING REALIZED GAINS: AUERBACH'S RETROSPECTIVE TAXATION PROPOSAL;2107.8.8;THE TAXATION OF HUMAN CAPITAL;2137.8.9;SUMMARY;2147.8.10;REFERENCES;2158;Part 3 The Theory