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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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  1. Jukka Pirttilä & Sanna Tenhunen, 2008. "Pawns and queens revisited: public provision of private goods when individuals make mistakes," International Tax and Public Finance, Springer, vol. 15(5), pages 599-619, October.
  2. Boadway, R. & Marchand, M., 1990. "The use of public expenditures for distributive purposes," CORE Discussion Papers 1990066, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Sören Blomquist & Luca Micheletto, 2005. "Optimal Redistributive Taxation when Government’s and Agents’ Preferences Differ," CESifo Working Paper Series 1429, CESifo Group Munich.
  4. Hamermesh Daniel S. & Slemrod Joel B, 2008. "The Economics of Workaholism: We Should Not Have Worked on This Paper," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 8(1), pages 1-30, January.
  5. Blomquist, Sören & Christiansen, Vidar, 2004. "Taxation and Heterogeneous Preferences," Working Paper Series 2004:9, Uppsala University, Department of Economics.
  6. Stiglitz, Joseph E., 1982. "Self-selection and Pareto efficient taxation," Journal of Public Economics, Elsevier, vol. 17(2), pages 213-240, March.
  7. Loewenstein, George & O'Donoghue, Ted & Rabin, Matthew, 2002. "Projection Bias in Predicting Future Utility," Working Papers 02-11, Cornell University, Center for Analytic Economics.
  8. Blomquist, Soren & Christiansen, Vidar, 1998. "Topping Up or Opting Out? The Optimal Design of Public Provision Schemes," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 399-411, May.
  9. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  10. Racionero, Maria del Mar, 2001. "Optimal Tax Mix with Merit Goods," Oxford Economic Papers, Oxford University Press, vol. 53(4), pages 628-41, October.
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  12. Blomquist, Sören & Christiansen, Vidar, 2004. "Welfare Enhancing Marginal Tax Rates: The Case of Publicly Provided Day Care," Arbetsrapport 2004:6, Institute for Futures Studies.
  13. Pirttila, Jukka & Tuomala, Matti, 2002. " Publicly Provided Private Goods and Redistribution: A General Equilibrium Analysis," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(1), pages 173-88.
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  16. Cremer, Helmuth & Gahvari, Firouz, 1997. "In-kind transfers, self-selection and optimal tax policy," European Economic Review, Elsevier, vol. 41(1), pages 97-114, January.
  17. Kanbur, Ravi & Pirttila, Jukka & Tuomala, Matti, 2004. "Non-Welfarist Optimal Taxation And Behavioral Public Economics," Working Papers 127150, Cornell University, Department of Applied Economics and Management.
  18. Sheshinski, Eytan, 2003. "Optimal Policy to Influence Individual Choice Probabilities," MPRA Paper 55163, University Library of Munich, Germany.
  19. Robin Boadway & Michael Keen, 1991. "Public Goods, Self-Selection and Optimal Income Taxation," Working Papers 828, Queen's University, Department of Economics.
  20. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  21. Besley, Timothy, 1988. "A simple model for merit good arguments," Journal of Public Economics, Elsevier, vol. 35(3), pages 371-383, April.
  22. Stefano DellaVigna & Ulrike Malmendier, 2006. "Paying Not to Go to the Gym," American Economic Review, American Economic Association, vol. 96(3), pages 694-719, June.
  23. Faruk Gul & Wolfgang Pesendorfer, 2007. "Harmful Addiction," Review of Economic Studies, Oxford University Press, vol. 74(1), pages 147-172.
  24. Schroyen, Fred, 2005. "An alternative way to model merit good arguments," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 957-966, June.
  25. Sandmo, Agnar, 1983. "Ex Post Welfare Economics and the Theory of Merit Goods," Economica, London School of Economics and Political Science, vol. 50(197), pages 19-33, February.
  26. Blomquist, Sören & Christiansen, Vidar, 1997. "Price Subsidies versus Public Provision," Working Paper Series 1997:12, Uppsala University, Department of Economics.
  27. Aronsson, Thomas & Thunström, Linda, 2005. "Optimal Paternalism: Sin Taxes and Health Subsidies," Umeå Economic Studies 662, Umeå University, Department of Economics.
  28. Sören Blomquist & Vidar Christiansen, 2003. "Is there a Case for Public Provision of Private Goods if Preferences are Heterogeneous? An Example with Day Care," CESifo Working Paper Series 938, CESifo Group Munich.
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