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The Second‐Best Level of a Public Good: An Approach Based on the Marginal Excess Burden

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  • Timothy Gronberg
  • Liqun Liu

Abstract

This paper studies the second‐best level of public goods, a topic first addressed formally by Atkinson and Stern (1974, Review of Economic Studies, 41, 119–128). It goes beyond the existing literature on this “level problem” by identifying the marginal excess burden as a key underlying force behind level comparisons. The propositions in this paper include previous results as special cases. The paper also relates the marginal excess burden condition to consumer behavior and to the complementarity or substitutability between the public good and the taxed private good.

Suggested Citation

  • Timothy Gronberg & Liqun Liu, 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 431-453, October.
    • Handle: RePEc:bla:jpbect:v:3:y:2001:i:4:p:431-453
    DOI: 10.1111/1097-3923.00077
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    Cited by:

    1. Ming Chang & Hsiao-Ping Peng, 2012. "Laffer effect, gross substitution, marginal cost of public funds and the level property of public good provision," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(5), pages 650-659, October.
    2. repec:ebl:ecbull:v:8:y:2007:i:9:p:1-10 is not listed on IDEAS
    3. Diego Martinez-Lopez, 2004. "The optimal provision of public inputs in a second best scenario," Economics Bulletin, AccessEcon, vol. 8(3), pages 1-9.
    4. Wendner, Ronald & Goulder, Lawrence H., 2008. "Status effects, public goods provision, and excess burden," Journal of Public Economics, Elsevier, vol. 92(10-11), pages 1968-1985, October.
    5. Ming Chung Chang & Hsiao-Ping Peng & Yan-Ching Ho, 2016. "The Social Marginal Cost Curve and a Corner Solution of the Second-best Level of Public Good Provision: A Review and an Extension," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 152(III), pages 209-241, September.
    6. Michael Lundholm, 2008. "Decentralizing Public Goods Production," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(2), pages 259-279, April.
    7. A. Sanchez & Diego Martinez, 2011. "Optimization in Non-Standard Problems. An Application to the Provision of Public Inputs," Computational Economics, Springer;Society for Computational Economics, vol. 37(1), pages 13-38, January.
    8. Liqun Liu, 2006. "Combining Distributional Weights and the Marginal Cost of Funds," Public Finance Review, , vol. 34(1), pages 60-79, January.
    9. Liqun Liu, 2005. "The Multi-Period Cost-Benefit Rule with Mobile Capital and Distorted Labor," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(2), pages 145-158, March.
    10. Diego Martinez Lopez & A. Jesus Sanchez Fuentes, 2006. "On the optimal level of public inputs," Working Papers 06.34, Universidad Pablo de Olavide, Department of Economics, revised Mar 2008.
    11. Liu, Liqun, 2003. "A marginal cost of funds approach to multi-period public project evaluation: implications for the social discount rate," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1707-1718, August.
    12. Ming Chung Chang & Hsiao-Ping Peng & Yan-Ching Ho, 2016. "The Social Marginal Cost Curve and a Corner Solution of the Second-Best Level of Public Good Provision: A Review and an Extension," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 152(3), pages 209-241, July.
    13. Liqun Liu, 2004. "The Marginal Cost of Funds and the Shadow Prices of Public Sector Inputs and Outputs," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 11(1), pages 17-29, January.

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