The second edition of Public Finance and Public Policy retains the first edition's themes of investigation of responsibilities and limitations of government. The present edition has been rewritten and restructured. Public choice and political economy concepts and political and bureaucratic principal-agent problems are introduced at the beginning for application to later topics. Fairness, envy, hyperbolic discounting, and other concepts of behavioral economics are integrated throughout. The consequences of asymmetric information and the tradeoff between efficiency and ex-post equality are recurring themes. Key themes investigated are markets and governments, institutions and governance, public goods, public finance for public goods, market corrections (externalities and paternalist public policies), voting, social justice, entitlements and equality of opportunity, choice of taxation, and the need for government. The purpose of the book is to provide an accessible introduction to the use of public finance and public policy to improve on market outcomes.

'Public choice, as an economic theory of politics, emerged in the mid-twentieth century because of gaps in the research agenda of public finance. Somewhat surprisingly, however, modern public choice and public finance research programs were never fully integrated. This book admirably meets this objective. It offers a sophisticated and comprehensive treatment of questions involving when and why politics arises, how politics can be predicted to work in practice, and how limits can be placed on political excesses. A well-informed, well-written treatise useful for several levels of readership.'

James M. Buchanan - Nobel Laureate, George Mason University

'This book sets a new standard for undergraduate texts on public finance. It is distinguished from other textbooks in the successful integration of traditional public finance with public choice, political economy, and behavioral economics. It provides an exciting, balanced, and up-to-date introduction to traditional topics, such as public goods, the theory of taxation, and externalities, as well as posing deeper questions about social justice, rent seeking, and political competition. The returns from reading this book are high, not only for the novice who is studying the subject for the first time, but also for the seasoned researcher who is looking for a comprehensive and coherent discussion of the literature.'

Toke S. Aidt - University of Cambridge

'This text provides a strikingly rich, thoughtful, thought-provoking, and unusually comprehensive overview of academic thinking about the role of government in the economy, emphasizing the role of political institutions in shaping how governments behave, and the resulting trade-offs between private and public provision. The book presents ideas in a way that is eminently accessible to undergraduate students. It is a delight to read.'

Roger Gordon - University of California, San Diego

'This book provides a comprehensive and accessible account of the core issues in public finance and public policy. While designed as a textbook, the book is also an organizing guide for practitioners and policymakers, who will find particularly useful the application of concepts to issues in income support and work incentives, education, health care, and the choice between tax financing and user prices.'

Sanjeev Gupta - Fiscal Affairs Department, International Monetary Fund, Washington, DC

'This fascinating book provides a clear account of the role of government through public finance and public policy. It gives a balanced and insightful analysis of the scope and limits of what government can and should do. Students will like the clear exposition and researchers will benefit from the book as a reference volume.'

Kai Konrad - Max Planck Institute for Intellectual Property, Competition and Tax Law, Munich

'This book is a gem. It brings alive the topics of public finance. The book is an extraordinary piece of work that enables students to achieve a balanced overview of market failures and government failures and thereby gain mature insight into desirable interactions between the market and the state. Teachers and students will benefit from this major achievement for years to come, making this book a classic.'

Dennis Snower - Kiel Institute for the World Economy and Christian-Albrechts University, Kiel