This course examines the role of the state in the economy. In particular, it examines how the state affects the allocation of resources and the distribution of income through public spending and taxation. The course material is divided into two main sections relating to the actions of the state: expenditure and revenues (taxation). The first part of the course provides an analysis of government expenditure (public goods, externalities, cost-benefit analysis), while the second part examines issues related to taxation (taxation theory, direct and indirect taxes).

Upon successful completion of this course students should be able to:

• have knowledge of and analyse the mechanism for determining the effective provision of public goods;
• understand the concept of externalities and analyse public and private responses to them;
• understand and analyse the mechanism of aggregation of individual preferences into collective (social) decisions;
• use cost-benefit analysis to evaluate public spending programmes;
• calculate the distribution of the tax burden on both the product and factor markets;
• know how the marginal and average tax rates are determined and the relationship of the latter with progressive taxation;
• analyse the economic impact of consumption and property taxes;
• know and evaluate how the tax base of individual income tax is determined;
• analyse the impact of corporate income tax on the behavior of legal entities;
• know how the tax base of corporate income tax is determined;
• understand the impact of inflation on corporate income tax; and
•  understand the functioning of the various social security systems.