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Public Provision of Private Goods, Tagging and Optimal Income Taxation withHeterogeneity in Needs

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  • Spencer Bastani
  • Sören Blomquist
  • Luca Micheletto

Abstract

Previous literature has shown that public provision of private goods can be a welfare-enhancing device in second-best settings where governments pursue redistributive goals. However, three issues have so far been neglected. First, the case for supplementing an optimal nonlinear income tax with public provision of private goods has been made in models where agents differ only in terms of market ability. Second, the magnitude of the welfare gains achievable through public provision schemes has not been assessed. Third, the similarities/differences between public provision schemes and tagging schemes have not been thoroughly analyzed. Our purpose in this paper is therefore threefold: first, to extend previous contributions by incorporating in the theoretical analysis both heterogeneity in market ability and in the need for the publicly provided good; second, to perform numerical simulations to quantify the size of the potential welfare gains achievable by introducing a public provision scheme, and to characterize the conditions under which these welfare gains are sizeable; finally, to compare the welfare gains from public provision with the welfare gains from tagging.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3275.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_3275

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Keywords: optimal income taxation; in-kind transfers; tagging;

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  1. Guesnerie, Roger & Roberts, Kevin, 1984. "Effective Policy Tools and Quantity Controls," Econometrica, Econometric Society, vol. 52(1), pages 59-86, January.
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  6. Robin BOADWAY & Pierre PESTIEAU, 2006. "Tagging and redistributive taxation," Annales d'Economie et de Statistique, ENSAE, issue 83-84, pages 123-147.
  7. Louis Kaplow, 2008. "Optimal Policy with Heterogeneous Preferences," NBER Working Papers 14170, National Bureau of Economic Research, Inc.
  8. Boadway, R. & Marchand, M., 1990. "The use of public expenditures for distributive purposes," CORE Discussion Papers 1990066, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  13. Helmuth Cremer & Firouz Gahvari & Jean-Marie Lozachmeur, 2010. "Tagging and Income Taxation: Theory and an Application," American Economic Journal: Economic Policy, American Economic Association, vol. 2(1), pages 31-50, February.
  14. BOADWAY, R. & MARCHAND, M. & PESTIEAU, P. & del MAR RACIONERO, M., 2001. "Optimal redistribution with heterogeneous preferences for leisure," CORE Discussion Papers 2001025, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  16. Tarkiainen, Ritva & Tuomala, Matti, 1999. "Optimal Nonlinear Income Taxation with a Two-Dimensional Population; A Computational Approach," Computational Economics, Society for Computational Economics, vol. 13(1), pages 1-16, February.
  17. Sören Blomquist & Vidar Christiansen & Luca Micheletto, 2008. "Public Provision of Private Goods and Nondistortionary Marginal Tax Rates," CESifo Working Paper Series 2303, CESifo Group Munich.
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  19. 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.
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Cited by:
  1. Spencer Bastani, 2013. "Gender-based and couple-based taxation," International Tax and Public Finance, Springer, vol. 20(4), pages 653-686, August.
  2. S�ren Blomquist & Vidar Christiansen & Luca Micheletto, 2010. "Public Provision of Private Goods and Nondistortionary Marginal Tax Rates," American Economic Journal: Economic Policy, American Economic Association, vol. 2(2), pages 1-27, May.
  3. Bastani, Spencer & Blomquist, Sören & Pirttilä, Jukka, 2013. "How Should Commodities Be Taxed? A Counterargument to the Recommendation in the Mirrlees Review," Working Paper Series, Center for Fiscal Studies 2013:5, Uppsala University, Department of Economics.
  4. Shun-ichiro Bessho & Masayoshi Hayashi, 2011. "Estimating the Social Marginal Cost of Public Funds: A Micro-data Approach," CIRJE F-Series CIRJE-F-817, CIRJE, Faculty of Economics, University of Tokyo.
  5. Jukka Pirttilä & Ilpo Suoniemi, 2010. "Public Provision, Commodity Demand and Hours of Work: An Empirical Analysis," CESifo Working Paper Series 3000, CESifo Group Munich.

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