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On the optimal level of public inputs

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Author Info
Diego Martinez Lopez () (Department of Economics, Universidad Pablo de Olavide)
A. Jesus Sanchez Fuentes () (Department of Economics, Universidad Pablo de Olavide)

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Abstract

This paper studies the optimal level of public inputs under two different tax settings. With this aim, we adapt the approach by Gronberg and Liu (2001) to the case of productivity-enhancing public spending. We find that it is not analytically clear whether the first-best level of public spending exceeds the second-best level. After taking account the type of public input, a wide numerical simulation has been carried out. We obtain that the second-best level is always below the first-best level but the criterion by Gronberg and Liu has to be qualified.

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Publisher Info
Paper provided by Universidad Pablo de Olavide, Departamento de Economía in its series Working Papers with number 06.34.

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Length: 20 pages
Date of creation: Dec 2006
Date of revision: Mar 2008
Handle: RePEc:pab:wpaper:06.34

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Related research
Keywords: Second best excess burden public input.

Other versions of this item:

Find related papers by JEL classification:
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate

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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.:
  1. Browning, Edgar K & Gronberg, Timothy & Liu, Liqun, 2000. "Alternative Measures of the Marginal Cost of Funds," Economic Inquiry, Oxford University Press, vol. 38(4), pages 591-99, October.
  2. Atkinson, Anthony B & Stern, N H, 1974. "Pigou, Taxation and Public Goods," Review of Economic Studies, Blackwell Publishing, vol. 41(1), pages 119-28, January. [Downloadable!] (restricted)
  3. Kay, J. A., 1980. "The deadweight loss from a tax system," Journal of Public Economics, Elsevier, vol. 13(1), pages 111-119, February. [Downloadable!] (restricted)
  4. Ming Chang, 2000. "Rules and Levels in the Provision of Public Goods: The Role of Complementarities between the public Good and Taxed Commodities," International Tax and Public Finance, Springer, vol. 7(1), pages 83-91, February. [Downloadable!] (restricted)
  5. James P. Feehan, 2002. "Distortionary Taxation and Optimal Public Spending on Productive Activities," Economic Inquiry, Oxford University Press, vol. 40(1), pages 60-68, January.
  6. Wildasin, David E, 1984. "On Public Good Provision with Distortionary Taxation," Economic Inquiry, Oxford University Press, vol. 22(2), pages 227-43, April.
  7. Thomas Gaube, 2005. "Financing Public Goods with Income Taxation: Provision Rules vs. Provision Level," International Tax and Public Finance, Springer, vol. 12(3), pages 319-334, May. [Downloadable!] (restricted)
  8. Wilson, John Douglas, 1991. "Optimal Public Good Provision with Limited Lump-Sum Taxation," American Economic Review, American Economic Association, vol. 81(1), pages 153-66, March. [Downloadable!] (restricted)
  9. Gronberg, Timothy & Liu, Liqun, 2001. " The Second-Best Level of a Public Good: An Approach Based on the Marginal Excess Burden," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 3(4), pages 431-53. [Downloadable!] (restricted)
  10. Sandmo, Agnar, 1972. "Optimality rules for the provision of collective factors of production," Journal of Public Economics, Elsevier, vol. 1(1), pages 149-157, April. [Downloadable!] (restricted)
  11. A. Jesus Sanchez Fuentes & Diego Martinez Lopez, 2006. "A new approach to solve non-regular constrained optimization problems. An application to optimal provision of public inputs," Working Papers 06.35, Universidad Pablo de Olavide, Departamento de Economía. [Downloadable!]
  12. Gaube, Thomas, 2000. "When do distortionary taxes reduce the optimal supply of public goods?," Journal of Public Economics, Elsevier, vol. 76(2), pages 151-180, May. [Downloadable!] (restricted)
  13. Triest, Robert K, 1990. "The Relationship between the Marginal Cost of Public Funds and Marginal Excess Burden," American Economic Review, American Economic Association, vol. 80(3), pages 557-66, June. [Downloadable!] (restricted)
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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. A. Jesus Sanchez Fuentes & Diego Martinez Lopez, 2008. "Optimization in non-standard problems. An application to the provision of public inputs," Working Papers 08.07, Universidad Pablo de Olavide, Departamento de Economía. [Downloadable!]
  2. A. Jesus Sanchez Fuentes & Diego Martinez Lopez, 2006. "A new approach to solve non-regular constrained optimization problems. An application to optimal provision of public inputs," Working Papers 06.35, Universidad Pablo de Olavide, Departamento de Economía. [Downloadable!]
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