Optimal Income Taxation and Public Goods Provision in a Large Economy with Aggregate Uncertainty

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Optimal Income Taxation and Public Goods Provision in a Large Economy with Aggregate Uncertainty

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Felix Bierbrauer ()

Abstract

We study a large economy model in which individuals have private information about their productive abilities and their preferences. Moreover, there is aggregate uncertainty so that the social benefits from taxation and public goods provision are a priori unknown. The analysis is based on a mechanism design approach that imposes a requirement of robustness with respect to individual beliefs and a requirement of coalition-proofness. The paper provides a tractable and intuitive characterization of incentive-feasible tax and expenditure policies: Incentive constraints associated with productive abilities reflect only individual behavior, whereas those associated with public goods preferences reflect only collective behavior.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 2701.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2701

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Find related papers by JEL classification:
D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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