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Optimal Provision of Public Goods: A Synthesis

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  • Claus Thustrup Kreiner
  • Nicolaj Verdelin

Abstract

The standard approach to the optimal provision of public goods highlights the importance of distortionary taxation and distributional concerns. A new approach neutralizes distributional concerns by adjusting the income tax schedule. We demonstrate that both approaches are derived from the same basic formula. We also take the new approach further by deriving an intuitive formula for the optimal level of public goods, without imposing strong assumptions on preferences. This formula shows that distortionary taxation has a role to play, as in the standard approach. However, the main determinants of optimal provision are different, and the modified Samuelson rule is likely to lead to underprovision.

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  • Claus Thustrup Kreiner & Nicolaj Verdelin, 2012. "Optimal Provision of Public Goods: A Synthesis," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(2), pages 384-408, June.
    • Handle: RePEc:bla:scandj:v:114:y:2012:i:2:p:384-408
    DOI: j.1467-9442.2011.01686.x
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    References listed on IDEAS

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    4. Åsmund Sunde Valseth & Katinka Holtsmark & Bjart Holtsmark, 2019. "The costs of taxation in the presence of inequality," Discussion Papers 908, Statistics Norway, Research Department.
    5. Felix J. Bierbrauer, 2014. "Optimal Tax and Expenditure Policy with Aggregate Uncertainty," American Economic Journal: Microeconomics, American Economic Association, vol. 6(1), pages 205-257, February.
    6. Mogens Fosgerau & Kurt Van Dender, 2013. "Road pricing with complications," Transportation, Springer, vol. 40(3), pages 479-503, May.
    7. Niehaus, Paul & Sukhtankar, Sandip, 2013. "The marginal rate of corruption in public programs: Evidence from India," Journal of Public Economics, Elsevier, vol. 104(C), pages 52-64.
    8. Torben M. Andersen & Claus T. Kreiner, 2017. "Baumol's Cost Disease and the Sustainability of the Welfare State," Economica, London School of Economics and Political Science, vol. 84(335), pages 417-429, July.
    9. Thomas B. Bjørner & Jørgen Brandt & Lars Gårn Hansen & Marianne Nygaard Källstrøm, 2019. "Regulation of air pollution from wood-burning stoves," Journal of Environmental Planning and Management, Taylor & Francis Journals, vol. 62(8), pages 1287-1305, July.
    10. Salmai Qari & Tobias Börger & Tim Lohse & Jürgen Meyerhoff, 2023. "The Value of National Defense: Assessing Public Preferences for Defense Policy Options," CESifo Working Paper Series 10872, CESifo.

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