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Optimal Income Taxation, Public-Goods Provision and Public-Sector Pricing: A Contribution to the Foundations of Public Economics

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Author Info
Martin Hellwig () (Max Planck Institute for Research on Collective Goods, Bonn, Germany)

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Abstract

The paper develops an integrated model of optimal nonlinear income taxation, public-goods provision and pricing in a large economy. With asymmetric information about labour productivities and publicgoods preferences, the multidimensional mechanism design problem becomes tractable by requiring renegotiation proofness of the final allocation of private goods and admission tickets for excludable public goods. Under an affiliation assumption on the underlying distribution, optimal income taxation, public-goods provision and admission fees have the same qualitative properties as in unidimensional models. These properties are obtained for utilitarian welfare maximization and for a Ramsey-Boiteux formulation with interim participation constraints.

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Publisher Info
Paper provided by Max Planck Institute for Research on Collective Goods in its series Working Paper Series of the Max Planck Institute for Research on Collective Goods with number 2004_14.

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Length: 53 pages
Date of creation: Nov 2004
Date of revision:
Handle: RePEc:mpg:wpaper:2004_14

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Related research
Keywords: Optimal Income Taxation; Public Goods; Public-Sector Pricing; Multidimensional Mechanism Design; Ramsey-Boiteux Pricing;

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Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
H40 - Public Economics - - Publicly Provided Goods - - - General

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  3. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75. [Downloadable!] (restricted)
  4. Gueth,Werner & Hellwig,Martin, 1986. "The private supply of a public good," Discussion Paper Serie A 40, University of Bonn, Germany.
    Other versions:
  5. Schmitz, Patrick W., 1997. "Monopolistic Provision of Excludable Public Goods under Private Information," MPRA Paper 6549, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  6. Seade, Jesus, 1982. "On the Sign of the Optimum Marginal Income Tax," Review of Economic Studies, Blackwell Publishing, vol. 49(4), pages 637-43, October. [Downloadable!] (restricted)
  7. Brunner, Johann K., 1993. "A note on the optimum income tax," Journal of Public Economics, Elsevier, vol. 50(3), pages 445-451, March. [Downloadable!] (restricted)
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  9. Cremer, Helmuth & Pestieau, Pierre & Rochet, Jean-Charles, 2001. "Direct versus Indirect Taxation: The Design of the Tax Structure Revisted," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(3), pages 781-99, August.
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  10. Boadway, Robin & Keen, Michael, 1993. "Public Goods, Self-Selection and Optimal Income Taxation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(3), pages 463-78, August. [Downloadable!] (restricted)
    Other versions:
  11. Peter Norman, 2004. "Efficient Mechanisms for Public Goods with Use Exclusions," Review of Economic Studies, Blackwell Publishing, vol. 71(4), pages 1163-1188, October. [Downloadable!] (restricted)
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  15. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
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  18. Hanming Fang & Peter Norman, 2003. "An Efficiency Rationale for Bundling of Public Goods," Cowles Foundation Discussion Papers 1441, Cowles Foundation, Yale University. [Downloadable!]
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  19. Mailath, George J & Postlewaite, Andrew, 1990. "Asymmetric Information Bargaining Problems with Many Agents," Review of Economic Studies, Blackwell Publishing, vol. 57(3), pages 351-67, July. [Downloadable!] (restricted)
  20. Martin Hellwig, 2008. "A Maximum Principle for Control Problems with Monotonicity Constraints," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2008_04, Max Planck Institute for Research on Collective Goods. [Downloadable!]
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  22. repec:cup:cbooks:9780521629560 is not listed on IDEAS
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  25. Hellwig, Martin, 2003. "A Utilitarian Approach to the Provision and Pricing of Excludable Public Goods," Sonderforschungsbereich 504 Publications 03-36, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim. [Downloadable!]
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  26. Rob, Rafael, 1989. "Pollution claim settlements under private information," Journal of Economic Theory, Elsevier, vol. 47(2), pages 307-333, April. [Downloadable!] (restricted)
  27. Hammond, Peter J, 1987. "Markets as Constraints: Multilateral Incentive Compatibility in Continuum Economies," Review of Economic Studies, Blackwell Publishing, vol. 54(3), pages 399-412, July. [Downloadable!] (restricted)
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  29. Martin Hellwig, 2005. "A Contribution to the Theory of Optimal Utilitarian Income Taxation," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2005_23, Max Planck Institute for Research on Collective Goods. [Downloadable!]
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  30. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Felix Bierbrauer, 2008. "A unified approach to the revelation of public goods preferences and to optimal income taxation," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2008_39, Max Planck Institute for Research on Collective Goods. [Downloadable!]
  2. Felix Bierbrauer, 2008. "Optimal Income Taxation, Public Goods Provision and Robust Mechanism Design," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2008_31, Max Planck Institute for Research on Collective Goods. [Downloadable!]
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