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