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Public Goods, Tax Policies, and Unemployment in LDCs

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  • Panos Hatzipanayotou

    ()
    (D.I.E.E.S., Athens University of Economics and Business)

  • Michael S. Michael

    ()
    (Department of Economics, University of Cyprus)

Abstract

We build a general equilibrium model of a small open economy characterized by unemployment and producing two privately traded goods and one nontraded public consumption good. The provision of public good is financed with an income tax or an excise tax on the manufactured good or an import tariff. Within this framework, the paper examines the effects of such policies on the country's unemployment ratio and welfare, and it derives the efficiency rules for public good provision for each policy instrument. It shows, among other things, that the private marginal cost of the public good always overstates its social marginal cost in the case of income taxes and may overstate it in the case of an excise tax on the manufactured good or a tariff even if the taxed good and the public good are substitutes in consumption.

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Bibliographic Info

Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 68 (2001)
Issue (Month): 1 (July)
Pages: 107-119

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Handle: RePEc:sej:ancoec:v:68:1:y:2001:p:107-119

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Web page: http://www.southerneconomic.org/
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Cited by:
  1. Juergen Huber & Martin Shubik & Shyam Sunder, 2011. "Financing of Public Goods through Taxation in a General Equilibrium Economy: Experimental Evidence," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1830R, Cowles Foundation for Research in Economics, Yale University, revised Apr 2013.
  2. Hamid Beladi & Chi-chur Chao & Daniel Hollas, 2011. "Fair wages, Urban Unemployment and Welfare in a Developing Economy," Economics Bulletin, AccessEcon, vol. 31(1), pages 273-285.
  3. Michael Haliassos, 2002. "Stockholding: Recent Lessons from Theory and Computations," University of Cyprus Working Papers in Economics, University of Cyprus Department of Economics 0206, University of Cyprus Department of Economics.

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