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Pawns and Queens Revisited: Public Provision of Private Goods when Individuals make Mistakes

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  • Jukka Pirttilä
  • Sanna Tenhunen

Abstract

This paper analyses the optimal tax policy and public provision of private goods when individuals differ in two respects: income-earning ability and rationality. Publicly provided goods should be overprovided or subsidised, relative to the decentralised optimum, if society’s marginal valuation of them exceeds the individual valuation and if these goods help relax the self-selection constraints, formulated in a new way. Optimal marginal income tax rates are shown to differ from the standard rules if publicly provided goods and labour supply are related.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2005/wp-cesifo-2005-05/cesifo1_wp1466.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1466.

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Date of creation: 2005
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Handle: RePEc:ces:ceswps:_1466

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Keywords: behavioral economics; optimal taxation; public provision;

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References

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  1. Besley, Timothy, 1988. "A simple model for merit good arguments," Journal of Public Economics, Elsevier, vol. 35(3), pages 371-383, April.
  2. Aronsson, Thomas & Thunström, Linda, 2005. "Optimal Paternalism: Sin Taxes and Health Subsidies," UmeÃ¥ Economic Studies 662, Umeå University, Department of Economics.
  3. Daniel S. Hamermesh & Joel Slemrod, 2005. "The Economics of Workaholism: We Should Not Have Worked on This Paper," NBER Working Papers 11566, National Bureau of Economic Research, Inc.
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  6. Blomquist, Sören & Christiansen, Vidar, 1997. "Price Subsidies versus Public Provision," Working Paper Series 1997:12, Uppsala University, Department of Economics.
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  8. Robin Boadway & Maurice Marchand & Pierre Pestieau & María del Mar Racionero, 2002. "Optimal Redistribution with Heterogeneous Preferences for Leisure," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(4), pages 475-498, October.
  9. Cremer, Helmuth & Gahvari, Firouz, 1997. "In-kind transfers, self-selection and optimal tax policy," European Economic Review, Elsevier, vol. 41(1), pages 97-114, January.
  10. Robin Boadway & Michael Keen, 1991. "Public Goods, Self-Selection and Optimal Income Taxation," Working Papers 828, Queen's University, Department of Economics.
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  13. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
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  15. Sören Blomquist & Vidar Christiansen, 2008. "Taxation and Heterogeneous Preferences," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 64(2), pages 218-244, June.
  16. Blomquist, S. & Christiansen, V., 1995. "Topping Up of Opting Out? The Optimal Design of Public Provision Schemes," Papers 1995-13, Uppsala - Working Paper Series.
  17. Blomquist, Sören & Christiansen, Vidar, 2004. "Welfare Enhancing Marginal Tax Rates: The Case of Publicly Provided Day Care," Arbetsrapport 2004:6, Institute for Futures Studies.
  18. Kanbur, Ravi & Pirttila, Jukka & Tuomala, Matti, 2004. "Non-Welfarist Optimal Taxation And Behavioral Public Economics," Working Papers 127150, Cornell University, Department of Applied Economics and Management.
  19. Sandmo, Agnar, 1983. "Ex Post Welfare Economics and the Theory of Merit Goods," Economica, London School of Economics and Political Science, vol. 50(197), pages 19-33, February.
  20. Stiglitz, Joseph E., 1982. "Self-selection and Pareto efficient taxation," Journal of Public Economics, Elsevier, vol. 17(2), pages 213-240, March.
  21. Sören Blomquist & Luca Micheletto, 2005. "Optimal Redistributive Taxation when Government’s and Agents’ Preferences Differ," CESifo Working Paper Series 1429, CESifo Group Munich.
  22. Sören Blomquist & Vidar Christiansen, 2003. "Is there a Case for Public Provision of Private Goods if Preferences are Heterogeneous? An Example with Day Care," CESifo Working Paper Series 938, CESifo Group Munich.
  23. Schroyen, Fred, 2005. "An alternative way to model merit good arguments," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 957-966, June.
  24. Pirttila, Jukka & Tuomala, Matti, 2002. " Publicly Provided Private Goods and Redistribution: A General Equilibrium Analysis," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(1), pages 173-88.
  25. Ted O'Donoghue & Matthew Rabin, 2003. "Studying Optimal Paternalism, Illustrated by a Model of Sin Taxes," American Economic Review, American Economic Association, vol. 93(2), pages 186-191, May.
  26. Stefano DellaVigna & Ulrike Malmendier, 2006. "Paying Not to Go to the Gym," American Economic Review, American Economic Association, vol. 96(3), pages 694-719, June.
  27. Jukka Pirttilä & Sanna Tenhunen, 2008. "Pawns and queens revisited: public provision of private goods when individuals make mistakes," International Tax and Public Finance, Springer, vol. 15(5), pages 599-619, October.
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Cited by:
  1. Aronsson, Thomas & Granlund, David, 2010. "Present-Biased Preferences and Publicly Provided Health Care," HUI Working Papers 41, HUI Research.
  2. Jukka Pirttilä & Sanna Tenhunen, 2005. "Pawns and Queens Revisited: Public Provision of Private Goods when Individuals make Mistakes," CESifo Working Paper Series 1466, CESifo Group Munich.

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