Public Finance, Foldvary

Problem set #2

Due Sept. 10, 2008

A) 10 points

Suppose a country is at war to prevent an invasion, and the war is supported by the people. What method of obtaining public revenue to pay for the war would be best for the economy in the long run? Explain, including why your selected method is better than the alternatives.

B) 10 points

Explain whether a land-value tax is better than neutral,

i.e. whether it is better for the economy to tax land value

even if the revenues are returned directly to the people

rather than used to finance public goods.