Public Economics

The Department of Public Economics at the Max Planck Institute for Tax Law and Public Finance studies the functioning of government, challenges, and opportunities for reform.

As a scientific discipline, modern public economics has several roots. Historically, it has a starting point in cameralism, which dealt with the functioning of state administration, with the establishment and monitoring of public budgets, and with the planning and execution of public projects.

Modern public economics applies concepts and methods of economic theory, econometrics and experimental economics, especially in the analysis of incentives in the relationship between private economic agents and the government. Important examples are taxation and social insurance. Public economics has received major impulses from the public choice school, which applies the economic principle of self-interest of agents in the public sector, analyzing the consequences of this principle for the functioning of public administration and the political decision making process. Another important basis of modern public economics is political theory, in particular the theory of the political decision-making processes.