Financing of Public Goods through Taxation in a General Equilibrium Economy: Experimental Evidence
AbstractWe compare laboratory general equilibrium economies in which maintenance of a depreciating public facility is financed either by anonymous voluntary contributions or taxes. Agents individually allocate their private goods between consumption and investment in production. The experimental economies sustain public goods at 80-90 percent of the infinite horizon but 25-30 percent above the finite horizon optimum. Payoff efficiency is around 90 percent. This contrasts with rapid decline of public goods under voluntary contributions. When subjects have the choice between a system with voluntary contributions or taxation, 23 out of 24 voting decisions favor taxation. Taxation appears to be superior on grounds of both long run efficiency and fairness. Economy is too complex for subjects to solve for optimally, but simple institutional constraints yield aggregate efficiency.
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Bibliographic InfoPaper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1830R.
Length: 39 pages
Date of creation: Oct 2011
Date of revision: Apr 2013
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
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