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Two-tier public provision: Comparing public systems

Author

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  • Lülfesmann, Christoph
  • Myers, Gordon M.

Abstract

The paper considers a two-tier institution in which government provides public services, but individuals can opt out of public provision (but not taxes). Funding for the public service is chosen endogenously by majority vote, and we first provide necessary and sufficient conditions for a majority vote equilibrium. In line with existing results, the equilibrium tax rate usually falls below the one found in a one-tier system (opting out of public consumption is prohibited) as the public system loses the political support of the rich who exit. We prove that when the two-tier system majority dominates a purely private system, a majority in society always welcomes a transition from a one-tier public system to a two-tier system, it is the only system that is stable in an evolutionary sense. Otherwise, a majority consisting of the middle class may be in favor of staying in a one-tier system (prohibiting exit) because of a slippery slope argument.

Suggested Citation

  • Lülfesmann, Christoph & Myers, Gordon M., 2011. "Two-tier public provision: Comparing public systems," Journal of Public Economics, Elsevier, vol. 95(11), pages 1263-1271.
  • Handle: RePEc:eee:pubeco:v:95:y:2011:i:11:p:1263-1271
    DOI: 10.1016/j.jpubeco.2010.08.002
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    References listed on IDEAS

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    Cited by:

    1. Neil Buckley & Katherine Cuff & Jeremiah Hurley & Stuart Mestelman & Stephanie Thomas & David Cameron, 2013. "Support for Public Provision with Top-Up and Opt-Out: A Controlled Laboratory Experiment," Department of Economics Working Papers 2013-15, McMaster University.
    2. Buckley, Neil & Cuff, Katherine & Hurley, Jeremiah & Mestelman, Stuart & Thomas, Stephanie & Cameron, David, 2015. "Support for public provision of a private good with top-up and opt-out: A controlled laboratory experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 111(C), pages 177-196.

    More about this item

    Keywords

    Publicly provided goods; Two-tier system; Exit option; Welfare;

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education

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