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Financing Public Goods with Income Taxation: Provision Rules vs. Provision Level

  • Thomas Gaube

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    Due to the use of distortionary taxation, many believe that real-world economies should attain a lower level of public expenditures than in a situation where lump-sum taxes are available. The present paper examines this hypothesis by means of the two-type self-selection model of income taxation. Based on the findings of Boadway and Keen (1993), I provide sufficient conditions for both a lower and a higher level of public expenditures in second best than in first best. In particular, it is shown that the separability assumption of Christiansen (1981) leads to under-provision of the public good in the income tax optimum. Copyright Springer Science + Business Media, Inc. 2005

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    File URL: http://hdl.handle.net/10.1007/s10797-005-0500-1
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    Article provided by Springer in its journal International Tax and Public Finance.

    Volume (Year): 12 (2005)
    Issue (Month): 3 (May)
    Pages: 319-334

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    Handle: RePEc:kap:itaxpf:v:12:y:2005:i:3:p:319-334
    Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=102915

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    1. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
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    5. 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.
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    16. Douglas Wilson, John, 1991. "Optimal public good provision in the Ramsey tax model : A generalization," Economics Letters, Elsevier, vol. 35(1), pages 57-61, January.
    17. Nichols, Albert L & Zeckhauser, Richard J, 1982. "Targeting Transfers through Restrictions on Recipients," American Economic Review, American Economic Association, vol. 72(2), pages 372-77, May.
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