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Optimal Income Taxation and Public Good Provision with Endogenous Interest Groups

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  • FELIX BIERBRAUER
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    Abstract

    This paper studies public goods provision when agents differ in earning abilities as well as preferences. Heterogeneity in skills makes redistribution desirable and generates an equity-efficiency trade-off. If tax revenues are devoted to a public good, this trade-off is affected in such a way that income transfers are less desirable. High-skilled individuals thus have an incentive to exaggerate their preferences for public goods. Analogously, low-skilled individuals lobby against public good provision. A requirement of collective incentive compatibility eliminates these biases. It implies that income transfers are increased whenever a public good is provided and are decreased otherwise. Copyright � 2009 Wiley Periodicals, Inc..

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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9779.2009.01412.x
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    Bibliographic Info

    Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

    Volume (Year): 11 (2009)
    Issue (Month): 2 (04)
    Pages: 311-342

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    Handle: RePEc:bla:jpbect:v:11:y:2009:i:2:p:311-342

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    Cited by:
    1. Potrafke, Niklas, 2011. "Does government ideology influence budget composition? Empirical evidence from OECD countries," Munich Reprints in Economics 19278, University of Munich, Department of Economics.
    2. Felix Bierbrauer & Pierre C. Boyer, 2010. "The Pareto-Frontier in a simple Mirrleesian model of income taxation," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2010_16, Max Planck Institute for Research on Collective Goods.
    3. Felix Bierbrauer, 2009. "Optimal Income Taxation and Public Goods Provision in a Large Economy with Aggregate Uncertainty," CESifo Working Paper Series 2701, CESifo Group Munich.
    4. Felix Bierbrauer, 2012. "Distortionary taxation and the free-rider problem," International Tax and Public Finance, Springer, vol. 19(5), pages 732-752, October.

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