AØKA08035U  Public Finance

Volume 2017/2018

MSc programme in Economics – elective course

Bacheloruddannelsen i økonomi – Prioriteret valgfag på 3. år

The Danish BSc programme in Economics - prioritized elective at the 3rd year


The course introduces students to main topics, concepts, theories, empirical methods and results in Public Finance. Public Finance deals with the role of government in the economy. It focuses on the relationship between the government and the market and tries to answer such questions as when should the government intervene, and what problems can arise due to government policy when governments operate under imperfect information and other imperfections. The course covers both positive and normative aspects of government policy regarding the expenditure side and, in particular, the financing side of the public sector.

A key aspect of Public Finance is the use of theoretical models to derive conditions for optimal policy that only depend on parameters that we can estimate on data. During the course the students will see examples of this close link between theory and data at the lectures and in hands on exercises.

Topics and questions that are covered in the course:

  • Deadweight loss and excess burden: How do we measure the efficiency cost of taxation and why is the size of the behavioral responses to taxation important?
  • Labor supply and taxes: In what way is the labor market special in terms of outcomes and public policies? How do this affect behavioral responses to taxation, efficiency and government revenue?
  • Measurement of behavioral responses: How can empirical methods be used to identify behavioral responses to government policy? What are the key assumptions and how can we validate them? 
  • Tax evasion: How is tax evasion defined? What is the level of tax evasion and what are the likely causes for it?

  • Tax incidence: What determines who bears the “true cost” of a tax? How it the distribution of the burden affected by imperfect competition (as oppose to perfect competition).
  • Taxation of firms: In what way is taxation of firms special? How does this affect who bears the burden of taxation and efficiency in the short and long run?

  • Inequality and intergenerational mobility: How is inequality measured? How has it evolved over time and how is it transmitted between generations?
  • Social welfare: What are the main arguments for government intervention? How do we compare and choose between different possible outcomes in society?
  • Optimal income taxation: How big is the trade-off between equality and efficiency? How high should the tax on high incomes be?
  • Social insurance: What is the difference between redistribution and social insurance? What is the optimal degree of social insurance (e.g. unemployment insurance) in society?
  • Public goods and fiscal federalism: What is the optimal provision of public goods? How is it affected by tax distortions? What defines a fiscal federalism and how does it affect the provision of public goods?
Learning Outcome

After completing the course, the student should be able to:


  • Provide precise definitions of key concepts used in public finance when debating public policy (tax pressure, excess burden, intensive vs. extensive responses etc.).
  • Know about motives for and against public sector involvement in the economy (redistribution, externalities, efficiency loss etc.).
  • Fully understand the theories and underlying assumptions behind key arguments about public policy (e.g. theory about tax incidence).
  • Know about and understand the different empirical methods applied when analyzing the effects of public policy (e.g. the difference-in-difference method), know about the assumptions underlying the different methods (e.g. the common trend assumption).
  • Know about main empirical findings on the effects of public policy (e.g. introducing an earned income tax credit).



  • Analyze and engage in discussions about the effects and optimality of public policy initiatives by understanding and using the appropriate concepts, providing correct theoretical arguments and include relevant results from the empirical literature.
  • Assess which empirical methods to use for analysing a policy problem, and be able to evaluate the strengths and weaknesses of different methods.



  • Apply the achieved knowledge to structure academic discussions about how to analyze the effects and optimality of new policy initiatives. E.g. in a bachelor or master thesis.
  • Acquire additional knowledge about public policy issues through reading of scientific journal articles and by following more advance courses in Public Finance.


Hindriks, Jean and Gareth Myles (2013): “Intermediate Public Economics”, 2nd edition, MIT Press.

Various journal articles and other readings.

Knowledge of basic economic principles at the first year level, micro economics at the second year level and empirical methods at the second year level og the Bachelor are required.

The student may also benefit from courses in Labor Economics and Applied Econometric Policy Evaluation
Lectures including two workshop where students analyze a problem theoretically and practice on using empirical methods to identify relevant behavioral responses to public policy.
2 hours lectures 1 to 2 times a week from week 6 to 21 (except holidays).

The overall schema for the BA 3rd year can be seen at https:/​/​intranet.ku.dk/​polit_ba/​undervisning/​Lektionsplan-F18/​Sider/​default.aspx
or the Master at https:/​/​intranet.ku.dk/​ECONOMICS_MA/​COURSES/​COURSECATALOGUE-F18/​Pages/​default.aspx

Timetable and venue:
To see the time and location of lectures please press the link/links under "Se skema" (See schedule) at the right side of this page (E means Autumn, F means Spring).

You can find the similar information partly in English at
-Select Department: “2200-Økonomisk Institut” (and wait for respond)
-Select Module:: “2200-F18; [Name of course]”
-Select Report Type: “List – Weekdays”
-Select Period: “Forår/Spring – Week 5-30”
Press: “ View Timetable”
7,5 ECTS
Type of assessment
Written examination, 3 hours under invigilation
at the computers of the university. The exam assignment is given in English and must be answered in English.
Exam registration requirements



Without aids
Marking scale
7-point grading scale
Censorship form
No external censorship
The course can be selected for external assessment.
Exam period

The exam takes place

Saturday June 16, 2018

at the exam venues of the university.

The exact time of the exam will be informed in the Self-Service at KUnet.

For enrolled students more information about examination, rules, exam schedule, venue etc. is available at the intranet for master students (UK) , master students (DK) and bachelor students (DK).



The written reexam takes place

August 23, 2018

If only a few students have registered for the written reexam, the reexam might change to oral including the date, time and place, which will be informed in KUNet or by the Examination Office.


For enrolled students more information about reexamination, rules, re-exam schedule,venue etc. is available at the intranet for master students (UK),master students (DK) and bachelor students (DK).

Criteria for exam assesment

Students are assessed on the extent to which they master the learning outcome for the course.

To receive the top grade, the student must with no or only a few minor weaknesses be able to demonstrate an excellent performance displaying a high level of command of all aspects of the relevant material and can make use of the knowledge, skills and competencies listed in the learning outcomes.

  • Category
  • Hours
  • Lectures
  • 42
  • Preparation
  • 161
  • Exam
  • 3
  • Total
  • 206