We review theoretical explanations for in-kind transfers in light of the limited empirical evidence. After reviewing the traditional paternalistic arguments, we consider explanations based on imperfect information and self-targeting. We then discuss the large literature on in-kind programs as a way of improving the efficiency of the tax system and a range of other possible explanations including the "Samaritan's Dilemma", pecuniary effects, credit constraints, asymmetric information amongst agents, and political economy considerations. Our reading of the evidence suggests that paternalism and interdependent preferences are leading overall explanations for the existence of in-kind transfer programs, but that some of the other arguments may apply to specific cases. Political economy considerations must also be part of the story.
This paper examines the role of public provision of goods as a redistributive mechanism when tax policies are designed optimally on the basis of the information available to the government. We characterize Pareto efficient allocations that are attainable through the tax policy, and derive the conditions under which public provision will enhance welfare above the maximum that can be achieved through a mix of a general income tax and commodity taxes (price subsidies). First, when there are two produced goods, we prove that public provision is always Pareto improving. This is achieved through changing individuals' actual consumption levels. Second, with no restrictions on the number of goods, we derive a sufficient condition for public provision to be Pareto improving. This is achieved by weakening self-selection constraints so that welfare improving tax changes are made possible. Suitable examples include provision of day care, basic health care and rights to a minimum old age pension.
This paper re-examines the optimal tax design problem (income and commodities) in the presence of externalities. The nature of the second-best, and the choice of the tax instruments, are motivated by the informational structure in the economy. The
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.