Optimal Income Taxation and Public-Goods Provision with Preference and Productivity Shocks
AbstractWe study how an optimal income tax and an optimal public-goods provision rule respond to preference and productivity shocks. A conventional Mirrleesian treatment is shown to provoke manipulations of the policy mechanism by individuals with similar interests. We therefore extend the Mirrleesian model so as to include a requirement of coalition-proofness. The main results are the following: first, the possibility of preference shocks yields a new set of collective incentive constraints. Productivity shocks have no such implication. Second, the optimal policy gives rise to a positive correlation between the public-goods provision level, the extent of redistribution and marginal tax rates.
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Bibliographic InfoPaper 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 2010_18.
Date of creation: May 2010
Date of revision:
Public Goods; Optimal Taxation; Mechanism Design;
Find related papers by JEL classification:
- D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-09-03 (All new papers)
- NEP-PBE-2010-09-03 (Public Economics)
- NEP-PUB-2010-09-03 (Public Finance)
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- Felix Bierbrauer & Martin Hellwig, 2011. "Mechanism Design and Voting for Public-Good Provision," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2011_31, Max Planck Institute for Research on Collective Goods.
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