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Welfare Measurement and Public Goods in a Second Best Economy

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  • Aronsson, Thomas

    ()
    (Department of Economics, Umeå University)

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    Abstract

    This chapter concerns welfare measurement in economies, where the government raises revenue by means of distortionary taxation. A major issue is the treatment of (state-variable) public goods in the context of social accounting. Although the marginal value that the government attaches to a public good is model-specific (as it depends on the exact nature of the underlying decision-problem), the analysis explains how the direct resource cost of providing increments to the public good and the marginal cost of public funds can be used to measure this marginal value. The first part of the chapter is based on a representative-agent growth model with linear taxation, whereas the second part addresses a model with heterogeneous agents and nonlinear taxation. The latter model also provides a framework for analyzing redistribution in the context of social accounting, and enables me to compare the results with those that would follow in a first best resource allocation.

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    Bibliographic Info

    Paper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 773.

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    Length: 31 pages
    Date of creation: 11 May 2009
    Date of revision:
    Handle: RePEc:hhs:umnees:0773

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    Postal: Department of Economics, Umeå University, S-901 87 Umeå, Sweden
    Phone: 090 - 786 61 42
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    Keywords: Social accounting; second best; public goods;

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