Optimal Democratic Mechanisms for Taxation and Public Good Provision

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Optimal Democratic Mechanisms for Taxation and Public Good Provision

Author Info

Felix Bierbrauer () (Max Planck Institute for Research on Collective Goods, Bonn)
Marco Sahm (University of Munich)

Abstract

We study the interdependence of optimal tax and expenditure policies. An optimal policy requires that information on preferences is made available. We first study this problem from a general mechanism design perspective and show that efficiency is possible only if the individuals who decide on public good provision face an own incentive scheme that differs from the tax system. We then study democratic mechanisms with the property that tax payers vote over public goods. Under such a mechanism, efficiency cannot be reached and welfare from public good provision declines as the inequality between rich and poor individuals increases.

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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 2008_09.

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Length: 37 pages
Date of creation: Mar 2008
Date of revision:
Handle: RePEc:mpg:wpaper:2008_9

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Find related papers by JEL classification:
H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information

This paper has been announced in the following NEP Reports:

NEP-ALL-2008-05-17 (All new papers)
NEP-CDM-2008-05-17 (Collective Decision-Making)
NEP-CTA-2008-05-17 (Contract Theory & Applications)
NEP-PBE-2008-05-17 (Public Economics)
NEP-POL-2008-05-17 (Positive Political Economics)
NEP-PUB-2008-05-17 (Public Finance)

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