Collective consumption of private goods

Recent econometric studies have argued that many of the goods and services currently provided by municipalities may be private rather than public. One explanation of this result is that decisions concerning which commodities are to be consumed collectively are not made in the market place but are the result of voting decisions. In this paper, we use a fairly simple voting model to examine the conditions under which a majority of the population might benefit from, and thus vote for, collective consumption of private commodities. It was shown that if all individuals vote and have equal political power, if the elasticity of tax shares was at least as progressive as the Lindahl equilibrium tax shareing arrangement, and if the income distribution was not skewed to the right, a majority of the population would prefer to have a private commodity consumed collectively. The segment of the population benefited by the change from private provision and consumption of a commodity to collective consumption of a commodity would be all voters with incomes equal to or less than the median income. The model also implies that any Lindahl equilibrium tax structure (along with the assumptions listed above), including tax structures which are regressive in the classic sense, would lead the collective provision of a private good to redistribute income away from high income voters and toward low and lower-middle income voters. Furthermore, not all increases in tax structure progressivity benefit lower income groups. Increasing the progressivity of the tax structure, in certain cases, may lead voters to prefer significantly lower levels of expenditures which could result in net welfare losses, not gains, to low income groups. Collective consumption of private goods also changes the total consumption of the commodity in question. For the most relevant case (that in which demand is inelastic), collective consumption of a private good leads to larger levels of both output and expenditures on the commodity. Copyright Center for Study of Public Choice Virginia Polytechnic Institute 1974