Two-tier public provision: Comparing public systems
AbstractThe paper considers a two-tier institution in which government provides public services, but individuals can opt out of public provision (but not taxes). Funding for the public service is chosen endogenously by majority vote, and we first provide necessary and sufficient conditions for a majority vote equilibrium. In line with existing results, the equilibrium tax rate usually falls below the one found in a one-tier system (opting out of public consumption is prohibited) as the public system loses the political support of the rich who exit. We prove that when the two-tier system majority dominates a purely private system, a majority in society always welcomes a transition from a one-tier public system to a two-tier system, it is the only system that is stable in an evolutionary sense. Otherwise, a majority consisting of the middle class may be in favor of staying in a one-tier system (prohibiting exit) because of a slippery slope argument.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Public Economics.
Volume (Year): 95 (2011)
Issue (Month): 11 ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505578
Publicly provided goods; Two-tier system; Exit option; Welfare;
Find related papers by JEL classification:
- D02 - Microeconomics - - General - - - Institutions: Design, Formation, and Operations
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
- H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
- H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
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