Part 1: Fundamentals of Public Finance
Chapter 1 Public Finance: Significance and Characteristics
1.1 Contents of Public Finance Research
1.2 What is government?
Characteristics of the government sector
Two Views on Government
1.3 Mixed Economy and the Role of Government
The meaning of a mixed economy
The government's role compared to a sports event
The three main functions of government
Big government, small government
1.4 The Future of Government
Progress of globalization
The spread of the Internet
Reduction of government activities
1.5 History of Public Finance Studies
Practice problems
References
Chapter 2 Our Country's Finances
2.1 Basic framework of finance
Central government finances
General Accounting
Special Account
Fund
2.2 Level and composition of government spending
Expenditure level
Composition of expenditures
2.3 Tax System
Tax burden rate
Income tax
consumption tax
Property tax
2.4 Local Finance
Composition of local finances
local tax system
Practice problems
References
Chapter 3 Welfare Economics
3.1 Criteria for welfare evaluation
3.2 Efficiency of resource allocation
Pareto efficiency
Perfect competition and efficiency in resource allocation
3.3 Market Failure
Various causes of market failure
Market failures and government intervention
3.4 Fairness of distribution
The meaning of fairness
The relationship between fairness and efficiency
3.5 Principle of Compensation
Pareto criterion
Knife standard
Scytovsky standard
Criticism of the principle of compensation
3.6 Social welfare function
Meaning of social welfare function
social indifference curve
Derivation of the most desirable distribution
Impossibility theorem
3.7 Theory of Lanes
Practice problems
References

Part 2: The Problem of Resource Allocation
Chapter 4: The Problem of Public Goods
4.1 The Meaning of Public Goods
Definition of public goods
Basic characteristics of public goods
imperfect public goods
Theory of the Club
4.2 Optimal level of public goods
Individual demand for public goods
Derivation of market demand
Derivation of an appropriate level
4.3 Lindahl's voluntary exchange model
4.4 The problem of free riders
The nature of the problem
The existence of the possibility of negotiation
demand expression mechanism
Public Goods Games - A Behavioral Economics Perspective
4.5 Other Aspects of Public Goods
The problem of the supply entity
Neutrality theorem
Public goods and public choice
Practice problems
References
Chapter 5 Theory of Public Choice
5.1 Significance of Public Choice Theory
5.2 Public choice under direct democracy
Full agreement system
majority system
Optimal majority payment
Point voting system
5.3 Political Balance under Majority System
Median voter theory
The Paradox of Voting
5.4 Public Choice under Representative Democracy
Background information
politician
bureaucracy
special interest groups
Practice problems
References
Chapter 6 The Problem of Externalities
6.1 The meaning of externality
Definition of externality
Types of externalities
6.2 Externalities and Resource Allocation
Intuitive explanation
Explanation by picture
6.3 Various methods of problem solving
How to utilize the market
Direct control method
6.4 Solving the problem by establishing ownership
Tragedy of the Commons 181 The Effects of Establishing Ownership
Coase's theorem
Practice problems
References
Chapter 7 Environmental Policy
7.1 Benefits and Costs of Environmental Policy
Several methods of benefit measurement
Controversy surrounding the contingent valuation method
Costs related to environmental policy
7.2 Basic Direction of Environmental Policy
How to use the market and how to control it directly
Environmental taxation and emissions trading system
7.3 Distributive Aspects of Environmental Policy
Distribution of benefits
Distribution of costs
7.4 Economic Growth and International Trade
Environmental Policy and Economic Growth
Environmental Policy and International Trade
7.5 Environmental Policy at the International Level
Kyoto Protocol
Paris Agreement
Practice problems
References

Part 3 Distribution and Social Welfare
Chapter 8 Income Distribution Theory
8.1 Definition of Distribution
egalitarian concept of justice
libertarian conception of justice
utilitarian conception of justice
Rawls's minimax principle
8.2 Utilitarian optimal distribution theory
Edgeworth's optimal distribution theory
Runner's Equal Probability Assumption
8.3 Inequality Index
Lorenz curve
Gini coefficient
5th quintile ratio
Atkinson index
8.4 Causes of Inequality
personal factors
social factors
Possibility of eliminating factors of inequality
Practice problems
References
Chapter 9 Redistribution Policy
9.1 Pros and Cons of Redistribution Policy
Opposing logic
The logic of approval
9.2 Examples of Redistribution Policies
General tax system
social welfare system
Income tax system for the wealthy
Earned Income Tax Credit
Basic income system
9.3 Determination of the poverty line
Poverty line based on absolute and objective criteria
Poverty line based on relative and objective criteria
Poverty line based on subjective criteria
policy poverty line
9.4 Redistribution Policy and Efficiency
Practice problems
References
Chapter 10 Social Insurance System
10.1 The Meaning of the Social Insurance System
10.2 Basic Characteristics of the National Pension System
Model of overlapping generations
The significance of the national pension system
10.3 Key Issues Related to the National Pension System
The need for a compulsory and public solution
Accumulation method and imposition method
redistributive elements
The necessity of imposing a purpose-built tax
The problem of reasonable pension benefit levels
10.4 Economic Effects of the National Pension System
Impact on savings behavior
Impact on labor supply
10.5 Our country's national pension system
Applicable target
premium
Pension benefits
Reform of the National Pension System
10.6 Basic Characteristics of the Health Insurance System
10.7 Our country's national health insurance system
Practice problems
References

Part 4: Public Expenditure Theory
Chapter 11: Analysis of Government Expenditures
11.1 The legitimacy of government spending
Compensation for market failure
income redistribution
Supply of value goods
11.2 The Economic Effects of Government Spending: Resource Allocation Aspects
The effect of spending on goods and services
The effect of previous spending
11.3 The Economic Effects of Government Spending: Income Distribution Aspects
Transfer and attribution of benefits
Specific examples of distributive effects
11.4 The continued increase in government spending
Wagner's Law
Causes of increased government spending
11.5 Re-delusion
What is financial delusion?
Causes of financial misunderstanding
11.6 Efficient Budget System
An example of a budget system that pursues incrementalism and rational efficiency.
Reform of our country's budget system
Practice problems
References
Chapter 12 Cost-Benefit Analysis
12.1 Cost-benefit analysis in the private sector
Present value method
Internal rate of return method
Benefit-cost ratio method
12.2 Cost-benefit analysis in the public sector
Special characteristics of public sector projects
Various objectives of public works
12.3 Evaluation criteria for benefits and costs
market price
Potential price
Adjusted market price
12.4 Benefit and Cost Assessment in Special Situations
When the market price changes
Valuation of things not traded in the market
statistical value of life
The problem of intentional misevaluation
Considerations on distribution aspects
12.5 Social discount rate
Derivation of a social discount rate equivalent to that in the private sector
Derivation of the 'social discount rate'
12.6 The Problem of Risk
Adjustment through discount rate
Adjustment through certain equivalence
12.7 Cost-Benefit Analysis in Reality
Practice problems
References

Part 5: Theory of Taxation
Chapter 13: Basic Principles of Taxation
13.1 Background
Economic development stages and major tax sources
Requirements for a Desirable Tax System
13.2 Principle of equitable tax burden
convenience principle
Competency Principle
13.3 Problems in assessing economic capacity
Various evaluation criteria for economic ability
Income as a criterion for assessing ability
13.4 Pros and Cons of the Progressive Tax System
dissenting opinion
Pros and cons
Principle of equal sacrifice
13.5 Efficiency of Taxation and Resource Allocation
The impact of taxes on economic activity
Neutral tax
Corrective taxation
13.6 The problem of tax evasion
Tax evasion and tax evasion
Model of tax evasion
Practice problems
References
Chapter 14 Taxation and Income Distribution
14.1 Tax Burden Incidence: Basic Discussion
Shifting of tax burden
Subject of tax burden
Source and use aspects of burden
Various concepts of destination
Distinction of attribution by different criteria
14.2 Analysis of the consequences: Partial equilibrium analysis
The consequences of excise taxes
The impact of taxation on factors of production
Capitalization of Taxes and the Burden of Taxation
14.3 Analysis of the Consequences: General Equilibrium Analysis
Basic assumptions of the model
Excise tax levied on only one product
Taxation of one factor of production used in one production sector
14.4 Empirical Analysis of Tax Burden Incidence
The burden of a specific tax
The burden of the entire tax system
Practice problems
References
Chapter 15 Taxation and Efficiency
15.1 Nature of excess burden
Definition of excess burden
Causes of excess burden
15.2 Excessive burden of commodity tax
Excess burden occurring at the market level
When excise tax is imposed on multiple products
Excessive burden at the individual level
15.3 Excessive Burden of Income Tax
Excess burden occurring at the market level
Excessive burden at the individual level
15.4 The Problem of Neutrality
Why Neutrality Taxes Are Not Used in Reality
Neutrality of income tax
Changes in demand and excess burden
15.5 Empirical Analysis of Excess Burden
Excessive burden of individual taxes
Excessive burden of the entire tax system
Practice problems
References
Chapter 16: Exploring Desirable Tax Systems
16.1 Optimal Tax Theory
Characteristics of the optimal tax structure
Optimal taxation as a second-best policy
16.2 Desirable forms of taxation
Direct and indirect taxes
Income tax and expenditure tax
16.3 Theory of Optimal Goods Tax
Ramsey rule
Inverse elasticity rule
Collet-Hague Rules
Distributional implications of optimal goods price theory
16.4 Theory of Optimal Income Tax
Measurement of progressivity
Linear progressive tax
Example of optimal linear progressive tax
The problem of optimal top income tax rates
16.5 Tax Administration Issues
Practice problems
References

Part 6: The Reality of Taxation
Chapter 17 Income Tax and Value Added Tax
17.1 Taxable income tax
Hague-Simons definition of income
Real-world definition of income
Various deduction systems
17.2 Income tax rate structure and taxation unit
Tax rate structure
Select tax unit
17.3 Nature of value added tax
Background to the introduction of value-added tax
Basis for value-added tax
Types of value-added tax
Method of calculating added value
17.4 Value Added Tax Rate Structure
Duty-free and tax-free rates
The regressive nature of value-added tax
Practice problems
References
Chapter 18 Corporate Tax
18.1 Nature of corporate tax
Pros and cons of the existence of corporate tax
Corporate tax base and tax rate structure
18.2 Attribution of corporate tax burden
The view that taxation is on capital invested in the corporate sector
The view that taxation is based on economic profits
18.3 Depreciation Problems
economic depreciation
Depreciation under corporate tax system
18.4 Inflation and Corporate Tax
18.5 The Problem of Corporate Tax Integration
Fully integrated
Partial integration
Practice problems
References
Chapter 19: Tax System Reform
19.1 Tax System Design and Reform
19.2 The issue of compensation
Problems with compensation
The unnecessaryness of compensation
19.3 Tasks of Tax System Reform
The problem of tax expenditures
Problems related to inflation
Reform tasks for the income tax system and corporate tax system
19.4 The Reality of Tax System Reform
Experience in developed countries
Reform of our country's tax system
Practice problems
References

Part 7 Taxes and Economic Activities
Chapter 20: Taxation and Economic Behavior: Individual Choice
20.1 Taxation and the Supply of Labor
Basic discussion
Representative individual choices and labor supply
Problems with the model
20.2 Empirical Study on the Impact on Labor Supply
Survey method
econometric methods
Experimental method
The effects of tax cut policies
20.3 Taxes and Savings
Motivation to save
Intertemporal resource allocation model
Effects of taxation
20.4 Empirical Study on the Impact on Savings
econometric methods
The effects of tax cut policies
Practice problems
References
Chapter 21: Taxation and Economic Behavior: Corporate Choices
21.1 Taxation and Investment: Background
21.2 Neoclassical investment theory
User costs of capital
Effects of taxation
Empirical research
21.3 Marginal Effective Tax Rate Approach
Marginal effective tax rate
Empirical research
21.4 Tax policies to promote investment
21.5 Taxation and Corporate Capital Structure
Modigliani-Miller's First Proposition
Introduction of taxes
Empirical research
21.6 Tax and Dividend Policy
Modigliani-Miller's Dividend Insignificance Theory
Empirical research
Practice problems
References

Part 8: Other Issues in Public Finance
Chapter 22 Fiscal Deficits and National Debt
22.1 Background Information
22.2 Size of fiscal deficit and national debt
The effects of inflation
Effects of interest rate fluctuations
The existence of capital expenditures
Size of national debt
22.3 Economic Effects of Fiscal Deficits
Impact on aggregate demand
Impact on capital accumulation and economic growth
Impact on the balance of payments
22.4 Burden of National Debt
traditional view
The view that the burden will be passed on to future generations
Ricardo's equivalence theorem
22.5 Intergenerational Accounting
22.6 The feasibility of financing through government bonds
Practice problems
References
Chapter 23 Theory of Public Utility Charges
23.1 Purpose of imposing public utility charges
Efficiency
fairness
Acquisition of financial revenue
23.2 Theory of Appropriate Public Utility Rates
Marginal cost pricing
Efficient use of existing facilities
Choosing the optimal facility size
23.3 Problems with Marginal Cost Pricing
Economies of scale and marginal cost pricing
Various coping strategies
23.4 Ramsey Price
23.5 Practical Considerations in Determining Public Utility Rates
Appendix: Mathematical Derivation of Ramsey Prices
Practice problems
References
Chapter 24 Local Finance
24.1 Centralized and Decentralized Systems
Advantages of a centralized system
Advantages of the decentralization system
Centralization rate
24.2 Fiscal Federal System
Decentralization and optimal regional size
State of perfect agreement
Taxation under the fiscal federal system
24.3 Tea parent model
Voting by the feet
Basic assumptions of the tea parent model
Conclusion of the Tea Parent Model
Limitations of the tea parent model
24.4 Local Finance Adjustment System
Significance of the local government financial adjustment system
Different types of grants
Economic impact of grants
Sticky effect
24.5 Our country's local finance adjustment system
local government allocation tax
government subsidies
24.6 The problem of soft budget constraints
What is a soft budget constraint?
Solutions to the Soft Budget Constraint Problem

Practice problems
References
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It has been nearly 30 years since this book was first presented to readers.
I would like to express my deepest gratitude to my readers for their continued support.
I think it has reached a certain level after being refined through several revisions, but it seems like there is still a long way to go.
However, I can confidently say that we have been constantly striving to keep up with the times.
This revision also began with updating various financial statistics.
Finance is a field that is directly connected to reality, and outdated statistical data cannot properly grasp reality.
In other areas, we have also made great efforts to vividly reflect the ever-changing financial reality.
I think that even if it is the same theory, it needs to be viewed from different angles depending on changes in economic circumstances.
As always, the main focus of this revision was to address any remaining shortcomings.
Among these, the part that has been particularly improved is the part that explains the impact of taxes on economic activity.
Since this is the area where most research is currently being conducted in the field of finance, the need for updates is bound to be great.
In addition, it was deemed necessary to provide more detailed supplementation as it is deeply related to the implementation of real-world policies.
Professor Jo Myeong-hwan, a co-author, also played a significant role in this revision.
It's safe to say that updating the statistics was a task that I did almost entirely by myself.
And in the part dealing with theory, he made up for many of my shortcomings with his fresh perspective as a young economist.
It was a great help to me to have such a capable co-author.
As you readers know, I have a particular interest in book cover design.
I believe that the book should faithfully convey its meaning while also being pretty enough for people to look at.
This time, Ms. Shinbi, who was studying abroad in Paris, willingly took on the difficult task.
I am so grateful to him for faithfully carrying out his mission and making me happy.
I would also like to express my deepest gratitude to all of you at Munwoo Publishing, who have worked through all the difficult tasks during the editing process without a single complaint.