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Public Finance in Practice and Theory

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  • Alan J. Auerbach

Abstract

Public finance has both normative and positive elements, and moving between theory and practice requires attention to help us understand both what policies government should adopt and whether it is likely to do so. We should not be surprised when bad policies are adopted in spite of better policies being available if our political system is structured to deliver bad outcomes, for example, if our political environment gives politicians strong incentives to serve narrow interests at the expense of the common good. But this article focuses on examples where the contrast between normative and positive outcomes is not so clearly explained, and thus where understanding the reasons for observed policy practices might help us develop better positive theories. The four cases analyzed are: piecemeal progressivity, minimum taxes and other individual limits, quantity-based restrictions and dedicated taxes. While a full explanation for the anomalies discussed lies beyond this article's scope, some lessons can be drawn from them. (JEL codes: H11 and D78) Copyright The Author 2009. Published by Oxford University Press on behalf of Ifo Institute for Economic Research, Munich. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

Suggested Citation

  • Alan J. Auerbach, 2010. "Public Finance in Practice and Theory ," CESifo Economic Studies, CESifo Group, vol. 56(1), pages 1-20, March.
    • Handle: RePEc:oup:cesifo:v:56:y:2010:i:1:p:1-20
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    File URL: http://hdl.handle.net/10.1093/cesifo/ifp029
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    Cited by:

    1. Schock, Matthias Malte, 2019. "Steuerreformvorschläge des Mirrlees Committee und der Stiftung Marktwirtschaft [Tax Reform Proposals of the Mirrlees Committee and the Stiftung Marktwirtschaft]," MPRA Paper 96689, University Library of Munich, Germany.
    2. Konstantinos Angelopoulos & George Economides & Apostolis Philippopoulos, 2010. "What is the best environmental policy?Taxes, permits and rules under economic and environmental uncertainty," Working Papers 119, Bank of Greece.
    3. Margaret Walls & Matthew Ashenfarb, 2022. "Efficiency and Equity of an Outdoor Recreation Equipment Tax to Fund Public Lands," Land Economics, University of Wisconsin Press, vol. 98(3), pages 520-536.
    4. Benjamin Bridgman & Shi Qi & James A. Schmitz, 2015. "Cartels Destroy Productivity: Evidence from the New Deal Sugar Manufacturing Cartel, 1934-74," Staff Report 519, Federal Reserve Bank of Minneapolis.
    5. Thiess Büttner & Frank Hechtner & Boryana Madzharova, 2023. "Taxes and Gender Equality: The Incidence of the ‘Tampon Tax’," CESifo Working Paper Series 10580, CESifo.

    More about this item

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation

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