From public finance to public economics

The emergence of the expression of ‘public economics’ marked an epistemological rupture in the economic discourse about the state. The local problems and national intellectual traditions that had shaped the centuries-old field of public finance were cast aside in favour of new problems and new methods. From the 1970s onward, public economics became an integrated international field defined by a methodological approach embodied in general equilibrium. Mathematics and optimisation changed the nature of the questions considered. After briefly outlining the historic constitution of the field of public finance and how it was transformed in the middle of the twentieth century, we explain how a new economic theory of public expenditures emerged with one foot in the old public finance and one foot in the new public economics. We then hint at how the integration of risk into economic theory unexpectedly transformed the way economists conceptualised the public sector. Last, we consider how the maximisation of social welfare functions exhibiting a trade-off between equity and efficiency replaced principles of taxation.