PUBLIC FINANCE
There are no propaedeutic constraints for passing the Public Finance exam but it is recommended that the Public Finance exam be taken after passing the Economics exam. The study of Public Finance requires a good knowledge of Microeconomics (consumer choice and market demand; production, costs and theory of the firm; equilibrium in markets of perfect competition and monopoly), a subject included in the teaching of Economics in the first year of the course of study. From a technical standpoint, knowledge of the basics of analytical geometry covered in the introductory part of the Economics course is required; in particular, analytical and graphical representation of straight lines and parabolas.
The exam is designed to assess reasoning skills and analytical rigor on the topics covered in the course, as well as language properties and written communication skills. Since these are second-year students, the assessment criteria also include, but to a limited extent given the complexity of the discipline, the ability to make independent judgments on issues pertaining to tax and public expenditure policies.
The exam is conducted in written form. The exam text offers 6 open questions: 3 on the tax system and 3 on public spending and the public economy of tourism. The test lasts 90 minutes and is required to answer three questions, including at least one from each group of questions. The questions may involve exposition of economic concepts, definitions and models, commenting on data and tables, and solving numerical problems. All questions are given equal weight and answers are graded in thirtieths. The final grade in the written test is therefore given by the simple average of the marks obtained in the individual questions (the grade is 10/30 for missing or severely insufficient answers while it is 15/30 for complete but insufficient answers). The written test is passed only if the average of the marks given in the individual questions is sufficient and only if there is a maximum of one insufficient answer. Before communicating the results of the written test to the students (as a rule, communication takes place in the classroom), the teacher describes the criteria for correction and evaluation, and reviews the most frequent errors. Finally, the written paper is reviewed, the grade is announced, and if accepted by the student is registered. Depending on the results of the written test, the teacher may propose to the student a short oral interview aimed at refining the final assessment.
The course in Public Finance belongs to the group of economic area teachings that characterize the curriculum in Tourism Science. It is grafted onto the Economics course in the first year and is complementary to the courses in Tourism Economics, Economic Policy and Industrial Organization and Industrial Policy that the student can include in the curriculum in the third year.
The course is divided into three parts: (I) Tax System, (II) Public Expenditure, and (III) Public Economics of Tourism.
Upon completion of the course the student will be able to:
I. know the economic principles of a good tax system and the most important taxes found in modern tax systems. Of particular interest to students of the Bachelor of Science in Tourism is the analysis of the tourist tax applied in our country by municipalities, which closes the first part of the course. The objective is to enable the student to interpret the effects of tax policies on the economic choices of consumers, workers and firms, and to understand the motivations that drive governments to change tax rates and taxable bases;
II. to know and understand the reasons for public intervention in a market economy and the role that government can play in the provision of public goods and services. The purpose is the properly "cultural" one of illustrating the mutually beneficial relationships between the private and public spheres in a modern economic system;
III. to learn about the role of public administrations in the tourism sector and the topic of policies aimed at tourism development and harmonization between tourism activities and the environment (the topic of so-called sustainable tourism). The objective is to provide the student with the ability to interpret purposes and motivations of public policies for tourism and to understand the nature of the inevitable "tradeoffs" between conflicting objectives and interests.
The course also includes the acquisition of soft skills such as language properties, written communication skills and independent judgment.
Tax system (approximately 22 hours)
The tax system: general aspects
Classification of taxes. Desirable characteristics of a tax system. Structure and evolution of the Italian tax system. The tax systems of some countries belonging to the OECD area. The principles of tax equity: benefit and ability to pay.
(Balestrino, Galli, Spataro, part V, ch. 1; Handout I, paras. 1, 2 and 3; Slide 1)
Personal income tax and progressivity
Articulation of the principle of ability to pay: no re-ranking, horizontal equity, vertical equity. The instruments of progressivity: income brackets and marginal rates, tax allowances, tax credits. Evolution of the Irpef from 1974 to the present. Measures of progressivity and distributional impact of the Irpef.
(Balestrino, Galli, Spataro, part V, ch. 3; Handout I, par. 9; Slides 2, 3 and 4)
Disincentive effects of taxes.
Labor supply, income tax and excess burden. Harberger triangles. A primer on optimal tax theory. Critiques of the neoclassical model of labor supply. (Balestrino, Galli, Spataro, part V, ch. 2; Handout I, paras. 4.2 and 4.3)
Tax shifting and tax incidence
De jure taxpayers and de facto taxpayers. Incidence of an indirect tax in a market of perfect competition. Structure of the EU VAT. Excise taxes on tobacco, fuel oils and alcoholic beverages.
(Balestrino, Galli, Spataro, part V, ch. 2; Handout I, para. 11)
Direct taxes and indirect taxes.
Structure and function of income and consumption taxes in a modern tax system. (Balestrino, Galli, Spataro, part V, ch. 3)
Case study: the tourist tax in Italy.
(Federalberghi Report on L'Imposta di Soggiorno)
Government spending (approximately 22 hours)
Introduction to welfare economics
Pareto efficiency. Efficiency in a barter economy and in a competitive economy. The first theorem of welfare economics. Market failures (monopoly, externalities, asymmetric information). (Handout II, paragraphs 1 through 7)
Public goods and market failures
Classification of public goods: definitions and examples. (Handout II, paragraph 8)
Pure public goods
Market failure in an economy with pure public goods: the free riding problem. "Private" solutions to market failure: the Coase theorem. Collective decision processes and rules: public failures in the allocation of public goods. (Handout II, paragraph 9)
Collective goods.
The problem of common resources. Possible remedies: monopoly, privatization, Pigouvian tariffs. Analysis and application to the case of road pricing. (Handout II, paragraph 10)
Club goods.
Tourism and cultural "products" (hospitality services, museums, transportation). Market failures: the case of a market of perfect competition and the case of a monopoly. Pricing policies in markets with club goods. (Handout available on the e-learning platform)
Public economics of tourism (approximately 6 hours)
Public policies in the tourism sector.
Positive and negative externalities in the consumption and production of tourism services. (Candela-Figini, ch. 14)
Sustainable tourism
The concept of sustainable tourism and the notion of carrying capacity of a tourism destination. (Candela-Figini, ch. 15)
The course includes 50 hours of face-to-face lectures, all delivered by the course instructor. At the request of students, the lecturer may devote the first part of each lecture to clarification and elaboration of topics covered in previous lectures. It is also possible to ask for clarification on specific points during the lecture.
Classes will be held in-person: Monday and Tuesday from 11 a.m. to 1:30 p.m.
The lecturer receives students in the office at the "Manica Lunga," 1st floor, St. Abbondio cloister, or via Teams, making appointments via e-mail at umberto.galmarini@uninsubria.it