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Pawns and queens revisited: public provision of private goods when individuals make mistakes

  • Jukka Pirttilä
  • Sanna Tenhunen

    ()

This paper analyses the optimal tax policy and public provision of private goods when individuals differ in two respects: income-earning ability and rationality. Publicly provided goods should be overprovided or subsidised, relative to the decentralised optimum, if society’s marginal valuation of them exceeds the individual valuation and if these goods help relax the self-selection constraints, formulated in a new way. Optimal marginal income tax rates are shown to differ from the standard rules if publicly provided goods and labour supply are related.

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File URL: http://hdl.handle.net/10.1007/s10797-007-9045-9
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Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 15 (2008)
Issue (Month): 5 (October)
Pages: 599-619

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Handle: RePEc:kap:itaxpf:v:15:y:2008:i:5:p:599-619
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=102915

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  18. Boadway, Robin & Keen, Michael, 1993. "Public Goods, Self-Selection and Optimal Income Taxation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(3), pages 463-78, August.
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  22. Sören Blomquist & Luca Micheletto, 2005. "Optimal Redistributive Taxation when Government’s and Agents’ Preferences Differ," CESifo Working Paper Series 1429, CESifo Group Munich.
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