When do distortionary taxes reduce the optimal supply of public goods?

This paper analyzes the effects of non-atmospheric consumption externalities on optimal commodity taxation and on the social cost and optimal levels of public good provision. A negative consumption externality, by lowering the social cost of public good provision, may require the second-best level of public good provision to exceed the first-best level. If those households who are most important for building up the consumption reference level respond the least to commodity taxation, heterogeneity may imply an equity-efficiency tradeoff. This tradeoff is present only if the consumption externality is of the non-atmospheric type.

Section: Introductionmentioning

confidence: 99%

Ramsey, Pigou, Heterogenous Agents, and Non-Atmospheric Consumption Externalities

Wendner

2011

“…The insistence on stability of coalitions with respect to the formation of subcoalitions distinguishes the present paper from some recent contributions to the literature on mechanism design problems under the possibility of coalition formation. In a series of papers Laffont and Martimort (1997, 1999, 2000 incorporate a sequential Bayesian game of coalition formation into a mechanism design problem. These authors however only consider collective manipulations by the grand coalition.…”

Section: Related Concepts Of Coalition-proofnessmentioning

confidence: 99%

Collectively Incentive Compatible Tax Systems

Bierbrauer

2006

This paper assumes that individuals possess private information both about their abilities and about their valuation of a public good. Individuals can undertake collective actions on order to manipulate the tax system and the decision on public good provision. Consequently, an implementable scheme of taxation has to be collectively incentive compatible. If preferences are additively separable, then an implementable tax systems has the following properties: (i) tax payments do not depend on public goods preferences and (ii) there is no scope for a collective manipulation of public goods preferences. For a quasilinear economy, the optimal tax system is explicitly characterized.

“…I therefore invoke the robustness requirement of Bergemann and Morris (2005) so that a social choice function has to be implementable for any set of beliefs that individuals might have. Given this robustness requirement, I extend the Taxation Principle, due to Hammond (1979) and Guesnerie (1995), to show that any mechanism is equivalent to a system specifying a public good provision level and an income tax schedule as a function of the cross-section distribution of preferences, which is such that, given the public good 1 Examples are Atkinson and Stern (1974), Wilson (1991), Boadway and Keen (1993), Nava et al (1996), Sandmo (1998), Gaube (2000), Hellwig (2004), Kaplow (2006) or Gahvari (2006).…”

Section: Introductionmentioning

confidence: 99%

Optimal Income Taxation, Public Goods Provision and Robust Mechanism Design

Bierbrauer

2008

This paper extends the model of optimal income taxation due to Mirrlees (1971) and includes private information on public goods preferences. A mechanism design approach is used to establish the following result: If policies are required to be robustly implementable in the sense of Bergemann and Morris (2005), then the optimality conditions in the extended model with uncertainty about tax and expenditure policies, are the same as in the standard model of optimal income taxation. The paper provides a foundation for a widely used assumption in public finance, namely that individuals optimize their behaviour subject to a predetermined and commonly known tax system.