Public Economics


The aim of the Public Economics course is to provide an overview of the major objectives of State intervention in a market economy, with particular emphasis on resource allocation, economic redistribution and stabilisation. By the end of the course students should master basic economic concepts, identify market failures and the corresponding corrective public intervention, understand the difficulties inherent to this intervention as well as its consequences. In general terms, it is expected that students learn basic microeconomic and macroeconomic concepts and learn how to analyze problems that are new to them in a formal way, based on (economic) models, developing their logic reasoning skills

General characterization





Responsible teacher

Susana Peralta


Weekly - 3

Total - 36

Teaching language



Microeconomics and Macroeconomics



Musgrave, R. e Musgrave, P. Public Finance in Theory and Practice, McGraw Hill.
Hindriks, J. and G. D. Myles, Intermediate Public Economics, MIT Press
Pereira, Paulo T. et al. Economia e Finanças Públicas, Escolar Editora, 2005

Teaching method


Classes with theoretical component presented by the teacher, followed by the resolution of practical exercises. Use of classroom experiments to motivate students.

Evaluation method

Final exam with the possibility of a mid-term test with a weight of 30% in the final grade, if higher than the exam grade.

Subject matter

1  Introduction (Gruber 1)

  • -  What is Public Economics

  • -  The size of the public sector

  • -  Positive vs normative economics

2  Externalities (Gruber 5 and 6)

  • -  Negative and positive externalities

  • -  Private sector solutions: the Coase theorem

  • -  Public sector solutions: Pigouvian taxes

3  Public Goods and Cost-Benefit Analysis (Gruber 7 and 8)

  • -  Optimal provision

  • -  Private provision: the free-riding problem

  • -  Measuring the costs of public projects

  • -  Measuring the benefits of public projects

4  Public Choice (Gruber 9)

  •  - Voting

  • -  Arrow's impossibility theorem

  • - Interest groups and rents

5 Public Policy evaluation (Gruber 3)

6  Nudge theory and public policy




Programs where the course is taught: