PUBLIC ECONOMICS

Course Code: ECO 3729 Credit Units: 03

Course Objectives:

Public policies involve revenue on one hand and expenditure on the other. Such policies have
microeconomic effect on distribution of income as well as efficient allocation of resources and
macroeconomic effect on, employment, prices and growth. The objective of this course is to
teach students the use of the tools of microeconomics to analyse the economic effects of public
expenditures and taxation. A brief outline shall also be given on the macro implications of such
policies. Business Management students should learn to appreciate the effects of taxation on
profitability of businesses.

Learning Outcomes:

On the completion of the course, the students will be able to:

1. Use the Microeconomic and Macroeconomic tools to understand and design public
policies.
2. Analyse the public policies adopted in India, evaluate their broad objectives and their
effects on businesses and households.
3. Apply the concepts to work on a project highlighting, the trends in public policies,
drawbacks of the existing policies and therefore the positive outcome of the recent GST
announcements.

Course Contents:

Unit-I
Introduction to Public Finance: Nature, Scope and Importance. Theory of Maximum Social
advantage. Private goods, Public goods and Merit goods. Overview of different role of
government: allocation, stabilization and distribution. Optimal provision of public goods.
Unit-II
Types of Government Budgets: Revenue account, Capital Account and different concepts of
budgetary deficits in the Indian context. Economic and functional classification of Central Govt.
Budgets.
Unit-III
Sources of Public Revenue: Tax and Non-tax sources, ad valorem and specific taxes, progressive
and proportional taxes, direct and indirect taxes. Approaches to tax equity: Benefit principle;
Ability to pay principle. Theory of Incidence of Indirect taxes. Taxable capacity: meaning and
determinants.
Unit-IV
Public expenditure: Rationale for the growth of public expenditure: Wagner’s law of increasing
state activities; peacock-Wiseman hypothesis. Canons of public expenditure. Changing Trends
and Pattern of direct and indirect taxes in India. Changing trends and pattern of government
expenditure in India. Recent tax and expenditure reforms in India.
Pedagogy:

Public finance is always in limelight. We are continuously discussing and debating government
policies. Businesses are greatly impacted by the taxation policies too. The goals of this course
are to develop a strong foundation in the theoretical framework and understand their implications
for the real world. Pedagogy for the module shall encapsulate presentations and lectures, class
discussions and case studies. Apart from following the lectures, students shall be encouraged to
participate in class discussions and to keep track of recent developments on the subject through
various media.

 Student Lecture and Presentation: To support the development of theoretical construct.

 Case studies: For better understanding of theories.
 Group assignment and presentations : To encourage team work and presentation skills

Examination Scheme:

Component of Evaluation Internal End Term

Weightage (%) 40 60

Text and Reference:

Core Text:
 R.A. Musgrave and P.B. Musgrave, Public Finance in Theory & Practice, McGraw Hill
Publications, 5th edition, 1989.
 H L Bhatia, Public Finance, Vikas Publishing, 2014.

Supplementary Text:
1. Joseph E. Stiglitz, Economics of the Public Sector, W.W. Norton & Company, 3 edition,
rd

2000.
2. John Cullis and Philip Jones, Public Finance and Public Choice, Oxford University
Press, 1st edition, 1998.
3. Harvey Rosen, Public Finance, McGraw Hill Publications, 7th edition, 2005.
4. Mahesh Purohit, Value Added Tax: Experiences of India and Other Countries, 2007.
5. Kaushik Basu and A. Maertens (ed.), The Oxford Companion to Economics in India,
Oxford University Press, 2007.
6. M.M. Sury, Government Budgeting in India, 1990.
7. M. Govinda Rao, Changing Contours of Federal Fiscal Arrangements in India, Amaresh
Bagchi (ed.), Readings in Public Finance, Oxford University Press, 2005.
8. Paul Samuelson, 1955, “Diagrammatic Exposition of a theory of Public Expenditure”,
Review of Economics and Statistics, Volume 37.
9. Shankar Acharya, 2005, “Thirty Years of Tax Reform in India”, Economic and Political
Weekly, May, pp. 14-20.