Advances in Public Economics

Thisbookisacollectionofeightpapersthatwerepublished in aspecial symposium issueofEmpirical Economicsdur­ ing 1999. These papers cover several areasofinterest in contemporary public economics, including tax incidence, underground economy, welfare system, fiscal federalism, public infrastructure and the growth of government. The contributionsutilizeavarietyofquantitativetoolsofanaly­ sis,includingappliedeconometrics,appliedgeneralequilib­ rium modeling analysis, technical efficiency analysis and institutional analysis. The introductory essay in the book summarizes the contributionsofapplied public economics papers inthisbookandplacesthem inabroadercontextof modempublicfinanceeconomictheory.Theobjectiveofthe bookistomaketheseessaysavailableinaconvenientform toscholarsandstudentsengaged inresearchonpublic pol­ icytopicsaswell astoinstructorsofcoursesinpubliceco­ nomics, both undergraduate and graduate. A briefmotiva­ tionforthebookisgivenbelow. Thestudyofpubliceconomicshasexperiencedanumber of dramatic changes during the past two decades. These changes have revolutionized, in a fundamental way, the subjectofpublic economics. This is due largely to several majordevelopments ineconomictheory,includingtheroles ofinformation theory and game theory along with its de­ rivative theories, such as designofinstitutions as well as inter-temporal analysis. These economic theory develop­ ments have altered in a fundamental way the way econo­ mists and policy analysts perceive the roleofgovernment. Alsothesedevelopmentshavecalledintoquestiontheabil­ ityofgovernmentstocarryoutsomeofitstraditionaltasks, particularly the efficient design of redistribution and tax systems. The theoretical research in public economics has contributedtothedevelopmentofnew instrumentsand ap­ proaches to tackle problemsofeconomic policy in a more effectivemanner.Giventhattheevaluationofpolicyoptions requiresasoundunderstandingofboththenatureandmag­ nitudeofeconomic,behaviouralandinstitutionalconstraints Preface VI thatarefaced bygovernments,there isaneedforempirical analysisofunderlyingpolicyquestionsandissues. Thiscollectionofessays on empirical finance indicates thatempiricalassessmentispossibleusingarichanddiverse setofempirical approaches. The various papers exemplify someofthevarioustechniquesthatcan beused byapplied researchersforsheddinglightonthequestionsofinterestin appliedpublicfinanceanditsapplications.