Relative Consumption, Optimal Taxation and Public Provision of Private Goods
AbstractThis paper shows that public provision of private goods may be justified on pure efficiency grounds in an environment where individuals have relative consumption concerns. By providing private goods, governments directly intervene in the consumption structure, thereby having an instrument to correct for the excessive consumption of positional goods. We identify sufficient conditions where public provision of private goods is always part of the optimal policy mix, even when consumption taxes are available. In fact, with public provision of private goods, there are cases where the first-best allocation can be achieved, and (linear) consumption taxes can be redundant.
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Bibliographic InfoPaper provided by Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Hannover Economic Papers (HEP) with number dp-510.
Length: 28 pages
Date of creation: Feb 2013
Date of revision:
Public Provision; Social Preferences; Status; Optimal Taxation;
Find related papers by JEL classification:
- H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
- D62 - Microeconomics - - Welfare Economics - - - Externalities
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-16 (All new papers)
- NEP-PBE-2013-03-16 (Public Economics)
- NEP-PUB-2013-03-16 (Public Finance)
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