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Consuming your Way to Efficiency: Public Goods Provision through Non-Distortionary Tax Lotteries

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  • Thomas Giebe
  • Paul Schweinzer

Abstract

We revisit the classical result that financing a pure public good through taxation of private consumption is inefficient. To this standard setup we add a consumption contest in which consumers can win a prize. We show that an appropriately chosen contest—which we call a ‘tax lottery’—can correct the distortion in private consumption while, at the same time, inducing efficient provision of the public good and balancing the government’s budget. The result does not depend on whether the public good is provided exogenously or dependent on actual tax revenue. We show that neither pure fundraising contests nor a sales tax combined with a ‘simple’ lottery can induce efficiency in the standard environment.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2013/wp-cesifo-2013-05/cesifo1_wp4228.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4228.

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Date of creation: 2013
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Handle: RePEc:ces:ceswps:_4228

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Related research

Keywords: public goods; taxation; contests; lotteries;

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References

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  1. Charles T. Clotfelter & Philip J. Cook, 1989. "Selling Hope: State Lotteries in America," NBER Books, National Bureau of Economic Research, Inc, number clot89-1, October.
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  19. Joaquim Silvestre, 2003. "Wicksell, Lindahl and the Theory of Public Goods," Scandinavian Journal of Economics, Wiley Blackwell, vol. 105(4), pages 527-553, December.
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Cited by:
  1. Olivier Bos & Béatrice Roussillon & Paul Schweinzer, 2013. "Agreeing on Efficient Emissions Reduction," CESifo Working Paper Series 4345, CESifo Group Munich.

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