Zaiseigaku (Public Finance - The economics of taxes and transfers)

This is a textbook of public finance for undergraduate students. It originated at the time when I began teaching the course “Public Finance” at the Faculty of Economics, the University of Tokyo. At that time, the course “Public Finance” (4 credits) was jointly taught by Professors Toshihiro Ihori and Nobuki Mochida. Following Professor Ihori’s retirement, I took over his part of the course in the 2015 academic year. From the following year, 2016, the course was divided into “Public Finance I” (2 credits) and “Public Finance II” (2 credits), and I assumed responsibility for the latter. Over the past ten years, I have taught this course under the theme of “taxes and transfers,” and the materials developed and used in these classes form the foundation of this book.
 
This book differs from typical public finance textbooks in several respects. First, as indicated in the subtitle, it focuses on “taxes and transfers.” Therefore, the book does not aim to be comprehensive but addresses topics related to taxes and transfers that are not adequately covered in existing textbooks. Moreover, thanks to the publisher’s generous allocation of space, I was able to provide detailed explanations of a broader range of topics as well as of the institutional arrangements and theoretical analyses relevant to each topic.
 
Second, the book focuses on balancing institutional description with economic theory. Although this textbook of public finance employs economic methods, readers can obtain sufficient introductory knowledge of the tax and transfer systems in Japan even if they skip the mathematical sections related to economic theory. At the same time, the book is designed to help readers with a solid understanding of economics but relatively little familiarity with fiscal institutions gradually deepen their understanding of those institutions.
 
Third, with respect to theoretical analysis, the book covers a wide range of material, from introductory topics to those at the level of an entry-level graduate course. Except for the sections on optimal taxation, the book can be read without difficulty by first- or second-year undergraduate students with a basic knowledge of microeconomics, particularly consumer theory. Although diagrams are extensively used to facilitate intuitive understanding, the book also includes topics beyond the standard scope of an undergraduate textbook, such as the design of benefit systems under asymmetric information. In the case of optimal taxation, although analyses based on optimal control theory are not explained in complete detail, the book covers both classical and relatively recent discussions, assuming knowledge of static optimization problems. In addition, bearing in mind readers who may have to study some of the more advanced topics on their own, I have made extensive use of footnotes to provide careful explanations of the mathematical derivations of theoretical propositions. It would bring me great satisfaction as a university teacher, if this book proves useful to students who are learning public finance outside the classroom.
 
Finally, as previously noted, this book does not cover all topics in public finance. In particular, it does not address budget management. Consequently, issues that many readers may associate with the term “public finance,” such as budget formulation, fiscal deficits, and public debt, as well as issues concerning intergovernmental fiscal relations, lie outside the scope of this book. Furthermore, although the book focuses on taxes and transfers, it does not provide a full analysis of administrative issues related to tax enforcement and benefit administration, including tax evasion and fraudulent benefit claims. Both categories of issues—those concerning budget management and those concerning tax and benefit administration—fall within the broad notion of fiscal management, and a comprehensive textbook treatment of these issues is left for future work.
 

(Written by HAYASHI Masayoshi, Professor, Graduate School of Economics / 2026)