R. A. Francisco Spring, 2012



Political Science 566: Social Welfare, Taxation and the Citizen


This course is about money, especially the lack and production of it. We cover in particular a recently emerging problem: European governments have for decades reduced their defense spending and increased their direct aid to citizens, making it easier for politicians to be re-elected. What they have created is technically called an annuity or pension problem, even though it also includes education and health care. We will investigate whether it is possible to sustain these programs, something made more difficult by the credit crisis that was generated by Wall Street in 2008 and continues in much of the world. U.S. citizens pay for the defense of the democratic world, but do not receive much in the way of social welfare, at least before old age. So the challenges in the U.S. are different, but no less compelling, especially as 73 million “baby boomers” retire.


We will investigate taxation and public finance in North American and European countries, then examine social welfare and its sustainability in the same countries. Third we will present the differential obligations of citizens in economically advanced countries. Arguably, the burdens of citizenship in the U.S. are far greater. In the final part of the course we will present solutions to these problems for Americans. For the most part these difficulties are financial. We will show you the rudiments of finance so that you can learn how to resolve challenges yourselves.


Research assignment: I will hand out a sheet detailing this assignment. Nonetheless, you must choose one of two types of topics. First, you can investigate how a single country can sustain its welfare provisions. I will show you how to evaluate this during the course. What would the government have to do in terms of raising retirement ages, means testing, shifting to defined-contribution pensions or reducing benefits? Second, you can develop your own plan to confront your own challenges as a U.S. citizen. You must assume that you will have no more income than 50% above the median household income and show how you will achieve a level of $2 million by the time you retire, all the while buying a house, raising at least one child, and having a modicum of fun.


We will not have a textbook as such. I will put readings on blackboard for many sessions. I recommend that you take advantage of your privilege as a student and acquire and read the Wall Street Journal, a newspaper that takes the topics in this course quite seriously.


W 18 January: Organizational Meeting


Taxation and Public Finance


F 20 January: Taxation and Public Finance: A General Perspective


M 23 January: Taxation and Public Finance in Canada and the U.S.


W 25 January: Taxation and Public Finance in Denmark, Finland, Norway, and Sweden


F 27 January: Taxation and Public Finance in Belgium, France, the Netherlands and Luxembourg


M 30 January: Taxation and Public Finance in Austria, Germany and Italy


W 1 February: Taxation and Public Finance in Ireland and the UK


F 3 February: Equitable Taxation


Social Welfare


M 6 February: Social Welfare in Canada and the U.S.


W 8 February: Social Welfare in Denmark, Finland, Norway and Sweden


F 10 February: Social Welfare in Belgium, France, the Netherlands and Luxembourg


M 13 February: Social Welfare in Austria, Germany and Italy


W 15 February: Social Welfare in Ireland and the UK


F 17 February: Sustainability of Social Welfare from an Actuarial Perspective


M 20 February: First Examination


Obligations of Citizens


W 22 February: Role of the Citizen in Canada and the U.S.


F 24 February: Role of the Citizen in Europe


M 27 February: The Greater Challenges for U.S. Citizens and Possible Solutions


Political and Legal Solutions for U.S. Citizens: Be a Rent Seeker


W 29 February: An Investment Primer


F 2 March: Compounding Computation


M 5 March: Dollar-Cost Averaging; Active Management vs. Indexing


W 7 March: The Gordon Equation vs. CAPM; Growth vs. Value


F 9 March: Portfolio Theory I


M 12 March: Portfolio Theory II


W 14 March: Inflation and Dividend-Growth Stocks: Compounding Redux


F 16 March: Second Examination


M 19 March: Spring break


W 21 March: Spring break


F 22 March: Spring break


M 26 March: Bonds, Interest Rates and Income Sources


W 28 March: Taxable, Tax Deferred and Tax-Free Investments


F 30 March: College Payment Plans; Mortgages and Amortization


M 2 April: Workplace Defined Contribution 401(k), 403(b) and 457 Plans vs. Defined Benefit Pensions


W 4 April: Roth IRAs and Workplace Roth 401(k) and 403(b) Plans; Roth conversions


F 6 April: Annuities: the Great, the Not Bad, the Ugly and the Obscene


M 9 April: Master Limited Partnerships and (tax-free) Return of Capital


W 11 April: Foreign Investments and Currency Risk


W 11 April: Forms of Investments and “Derivatives”


F 13 April: Takeout Rates and Reverse Mortgages


M 16 April: Collections and Commodities


W 18 April: Real Property, Depreciation and REITS


F 20 April: Estate Taxes, Wills, Gift Taxes, Trusts and Inheritances


M 23 April: Case Studies of Americans Who Have Faced Challenges I


W 25 April: Case Studies of Americans Who Have Faced Challenges II


F 27 April: No class: work on papers


M 30 April: No class: work on papers


W 2 May: Putting it All Together; papers due


Third Examination