THE COPPERBELT UNIVERSITY

School of Business
Department of Economics
BEC 310: Public Finance

Meeting Days and Times:

The purpose of this course is to introduce students of economics to public finance. By its
nature, public finance is one of the oldest fields of study in economics. This course, therefore,
is designed to introduce students to a vital field in economics which has both a long-standing
relevance to contemporary phenomena. In essence, public finance deals with the role of
government, how government policies affect the economy and these policies can be evaluated.

By the end of this course, students are expected to demonstrate:

 knowledge of the government and public policy.

Course Content
1. Introduction to Public Finance
 Normative and Positive Analysis
 Modelling
 Methodology
 The Minimal State
 Market Failure
 Redistribution
 The Goals of Government Policy
 The Government as an Agent

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2. Competitive Markets and Welfare Economics
 Introduction
 Efficiency and Competitive Markets
 Welfare Economics
 Efficiency in Consumption
 Efficiency in Production
 Optimal Product Mix
 Fundamental Theorems of Welfare Economics
 Applications
 Limitations of Efficiency Results
 Theory of the Second Best
3. Imperfect Competition
 Imperfect Competition
 Monopoly
 Two-Part Pricing
 Policies Towards Monopoly
 Cross subsidization and Ramsey Pricing
 Patents
 Application: Corruption
 Cournot Oligopoly
4. Public Goods
 Public and Private Goods
 Efficient Provision of Public Goods
 Private Provision of Public Goods
o Clarke-Groves Mechanism
o The Ideal Lindahl Mechanism
5. Externalities
 Pecuniary and Non-pecuniary Externalities
 Types of Externalities
o Negative Externalities
o Positive Externalities
 Towards Social Optimum
o Merger
o Assigning Property Rights
o Pigouvian Taxation
 The Tragedy of the Commons
 Personal Interactions that are not Externalities
 Rent Seeking and Resolution of the Tragedy of the Commons

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  Global Externalities and International Agreements
6. Asymmetric Information
 Adverse Selection
o Akerlof's Model of a Used Car Market
 Adverse Selection and Policy
 Signalling
 Moral Hazard
o A Principal-Agent Model of Moral Hazard
 Moral Hazard and Policy
 Public Provision of Health Care
 Government Failure
7. Public Choice Theory and Voting
 Preference Aggregation
 Majority Voting
o Voting and Efficient Public Spending
o A Majority Voting Equilibrium
o Logrolling
 Political Competition
 Voting on Income Redistribution
 Candidate Competition
 Probabilistic Voting
 Differentiated Candidates
8. The Theory of Taxation and Tax Policy
 Definition and Classification of Taxes
 The Role of Taxation in an Economy
 The Characteristics of a Good Tax System
 Framework for Evaluating a Tax System
 Fiscal Adequacy and Productivity
 Income Taxation
o Social Justice and Income Taxation
 Commodity Taxation
o Social Justice and Commodity Taxation
 Capital Taxation and Other Tax Bases
 Fiscal Federalism
 Tax Evasion and the Shadow Economy
 Tax Policy
o Tax Design and Structure
o Tax Administration and Tax Reforms

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  Structure and Policy of Zambia's Tax System
9. Government Budgeting and Cost Benefit Analysis
 Budgeting Process in Zambia
 National Budget and Budget Analysis Framework
 Government Budget and Public Policy
 Deficit Financing and Fiscal Policy
 Role of Deficit Financing in a Developing Economy
 Cost-Benefit Analysis
o Enumerating Costs and Benefits
o Evaluating Costs and Benefits
o Discounting Future Net Benefits
o Merits and Limitations
 The Role of Cost-Benefit Analysis in Budgeting
10. Public Expenditure and Public Debt
 Public Expenditure Size and Growth
 Theories of Public Expenditure Growth
 Public Expenditure Policy in Zambia
 Domestic and External Debt
o Sources, Causes, Management and Financing
 Overview of Debt in Zambia
 Fiscal Sustainability and Debt Sustainability
 Methods of Debt Redemption
 The Role of Public Borrowing in a Developing Economy
 Difficulties of Public Borrowing in Underdeveloped Countries
 The Effects or Burden of the Public Debt
 Ricardian Equivalence
 Departure from Ricardian Equivalence
11. Income, Inequality and Poverty
 Mearsuring Income
 Equivalent Scales
 Inequality Measurement
 Inequality and Welfare
 Poverty
o Poverty Measures
o The Poverty Line
12. Governance and Public Finance
 The Concept of Governance
 Economic Governance Issues

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  Corporate Governance and Public Finance
 Planning and Economic Governance
 Stabilisation Function of the Government
 Structural Adjustments Programmes (SAPs)

Required Readings
Hillman, A. 2004. Public Finance and Public Policy. 2nd edn. Cambridge University Press, New
York.

Myles, G.D. & Hindriks, J. 2006. Intermediate Public Economics, MIT Press, Cambridge.

Gruber, J. 2007. Public Finance and Public Policy, Worth Publishers, New York.

Rosen, H.S, & Gayer, T. 2010. Public finance.8th edn. McGraw-Hill/Higher Education, Boston.

Hyman, D.N. 2013. Public Finance: A contemporary application of Theory to policy. 10th edn.
South-Western Cengage Learning, Ohio.

Recommended Readings
Musgrave, R. A. & Musgrave, P.B. 2004. Public Finance in Theory and Practic., 7th ed. McGraw-
Hill; New York.

Langmead, P., et al. 2006. Tax Policy issues in Zambia: Selected Papers, Lusaka.

Method of Teaching
Four contact hours, consisting of: two-hour lecture, twice a week.

Course Assessment
Continuous Assessment 40 %

 Tests
 Assignments
 Quizzes
Final Examination 60 %