1. Public finance and public choice
Prepared by Dr. Weidong CHEN
PUBLIC FINANCE: BILINGUAL COURSE
school of public administration, Weidong CHEN

2. Personal Academic Background
Weidong CHEN, graduated from JUFE and got Master’s Degree of Economy in 1997; graduated from Renming University of China and got PH.D degree of applied Economics in He has been certificated as an associate professor in 2004, and studying as a PDP staff in the University of South Australia during
Main research area: theory of public economics, income redistribution.
Contact way: International School
Phone:
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3. On the materials of this course
Our textbook:
Public Finance and Public Choice
Pressed by Oxford University, by John Cullis and Philip Jones , the second edition
Public Finance
Harvey S.Rosen ,Ted Gayer
I choose some part of them to make the content more reasonable for Chinese students.
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4. The main purpose of this course
The main purpose of this course is to develop your ability in English literature reading. By following the instruction of our class , we hope your skills of literature reading will be increased and known how to read and write academic papers.
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5. Evolution of this public finance
Maybe we could differentiate two kinds of traditions in the Classic Public Finance literature.
One we could called it “Anglo-Saxon tradition”, it was established by the England classic economists such as Smith, David Ricardo, developed by John Mill, Alfred Marshall and Pigou . They paid more attention on revenue. They are the mainstream economists.
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6. The other tradition sometimes we call it “ continent tradition”
The other tradition sometimes we call it “ continent tradition”. Retrospect to the early German Historical School of Economics, including F.List, W.Roscher and K.Dietze in the 18 century, A.Schaffle and A.Wagner in the 19 century, this tradition focus on the public expenditure. K.Wicksell and E.Lindahl (from Sweden), Sax , Panteleoni and Mazzola (from Italy) also belong to this tradition. They use the marginal analysis tool.
(special mention Wicksell’s contribution to PC school,combined taxation with spending )
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7. Then John Maynard Keynes developed the modern macroeconomics
Then John Maynard Keynes developed the modern macroeconomics. His policy suggestions have great influence on the public finance policy. He stressed the importance of government’s intervention to rectify the market failure . He gave public finance another function: stabilize the macro-economy. He also stressed the important role of government to redistribute income.
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8. By the contribution of all these economists , especially by many economists in the 20 century 50-60’s (include C.Bowen, D.Black, R. Musgrave, P.Samuelson, K.Arrow,A.Downs, J.Buchanan and G..Tullock ), Public finance was experienced a revolutionary change ,such change was named:”through public finance to public economy”
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9. Today, some public sector economy theorist like the welfare-economic approach, others use the “public choice” approach.
our textbook focus on both the social optimality and public choice approaches but also includes alternative perspectives. That is the practice of the traditional political economy.
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10. Assessment
     According to our university’s requirement, 30% of the ordinary score+70% of the final examination.
The first part (10 point) depend on your performance during the classroom learning, such as the class attendant, active participation during the classes, etc..
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11. You get the second ordinary grade(15points) in another way: everyone will be given some pages of a paper, what I want you to do is to translate them into Chinese. Among them,10 points will be based on your quality and attitude of your translation.
5 points depend on your group presentation. Your group should prepare a 5 minutes presentation about the main idea of your paper. I will select the person in your group randomly. their performance will decide the grade of your group of this part .
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12. Another 5 points will be from the class debating
Another 5 points will be from the class debating. I will give you some currents Chinese fiscal polices, you will be asked to prepare your presentation in English (not more than 4 minutes ).
the most important thing for you is to participate the group activities ,not only the perfect translation skills (although this will give you a better grade ,too),
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13. Appendix:some basic analyzing instrument for this course
Demand and supply: the key concepts of economics
How to get the demand and supply curves? Empirical evidence.
As for the demand function, there are at least four variables should be include: price, income, prices of related goods and tastes
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14. demand
However,to simplify the analysis, we always taken other things stay at their fixed values(ceteris paribus:other things being equal),just thinking about the relationship between demand quantity and the price
Moving along the demand curve and the shift of demand curve
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15. supply
As for the supply function, there are at least three variables should be include: price, prices of inputs goods and conditions of production
However,to simplify the analysis, we always taken other things stay at their fixed values(ceteris paribus:other things being equal) ,just thinking about the relationship between supply quantity and the price
Moving along the supply curve and the shift of supply curve
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16. Equilibrium:the joint analysis of D&S
It tells us the result of one good in the market
Definition. A situation that tends to be maintained unless there is an underlying change in the system
Price elasticity of demand: the abs. Value of the percentage change in quantity demanded divided by the percentage change in price
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17. Equilibrium in one good marketP1 Pe P2
QD1
QS1 Qe
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18. Theory of choice How consumers satisfied with limited budget
We always use indifference curves to represent the satisfaction of consumers to certain things (utility)
The detailed description of IC was presented in the textbook of economics, which shows all consumption bundles among which the individual is indifferent
MRSAB: marginal rate of substitution of A for B, which is the absolute value of the slope of IC
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19. note: Compensated demand curve
if income is the only factor that affects the utility, then points in the same IC represent a different combination of the same income.
What is the meaning of income effect and the substitution effect in accordance with the IC ?
(moving along the IC or the shift of IC)
Compensated demand curve
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20. Indifference map :the entire collection of IC
Why the IC is downward as you consume more of one good(denote in the X-axis)? the diminishing marginal rate of substitution
Indifference map :the entire collection of IC
Budget constraint,budget line
What is the results to budget line as the prices or income change?
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21. The derivation of demand curves :fix the price of another good
Equilibrium of individual’s choice: the point at which budget line tangent to the IC
Some variation :changes in price/income, lead to the changes of budget constraint.
The derivation of demand curves :fix the price of another good
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22. Marginal analysis
In economics, marginal means additional or incremental
The key point is the difference between marginal benefit and marginal cost
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23. Consumer and producer surplus
CS. The amount by which the sum that individuals would have been willing to pay for one good exceeds the sum they actually have to pay
How to measure?
Producer surplus: the amount of income individuals receive in excess of what they would require to supply a given number of factor
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24. Weidong CHEN