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Rules and Levels in the Provision of Public Goods: The Role of Complementarities between the public Good and Taxed Commodities

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  • Ming Chang

Abstract

This paper revisits the question of whether the second-best level of public good provision is lower than the first-best level in a standard model of public good provision with identical consumers. The role played by the complementarities between the public good and the private commodities is clarified. Furthermore, it is shown that the second-best level is indeed below the first-best level if the Hicksian demands for the taxed commodities are independent of the level of public good provision. Copyright Kluwer Academic Publishers 2000

Suggested Citation

  • Ming Chang, 2000. "Rules and Levels in the Provision of Public Goods: The Role of Complementarities between the public Good and Taxed Commodities," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 7(1), pages 83-91, February.
  • Handle: RePEc:kap:itaxpf:v:7:y:2000:i:1:p:83-91
    DOI: 10.1023/A:1008758130054
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    References listed on IDEAS

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    1. Wildasin, David E, 1984. "On Public Good Provision with Distortionary Taxation," Economic Inquiry, Western Economic Association International, vol. 22(2), pages 227-243, April.
    2. Batina, Raymond G., 1990. "On the interpretation of the modified samuelson rule for public goods in static models with heterogeneity," Journal of Public Economics, Elsevier, vol. 42(1), pages 125-133, June.
    3. 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.
    4. Charles L. Ballard & Don Fullerton, 1992. "Distortionary Taxes and the Provision of Public Goods," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 117-131, Summer.
    5. Wilson, John Douglas, 1991. "Optimal Public Good Provision with Limited Lump-Sum Taxation," American Economic Review, American Economic Association, vol. 81(1), pages 153-166, March.
    6. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production: I--Production Efficiency," American Economic Review, American Economic Association, vol. 61(1), pages 8-27, March.
    7. A. B. Atkinson & N. H. Stern, 1974. "Pigou, Taxation and Public Goods," Review of Economic Studies, Oxford University Press, vol. 41(1), pages 119-128.
    8. King, Mervyn A., 1986. "A pigovian rule for the optimum provision of public goods," Journal of Public Economics, Elsevier, vol. 30(3), pages 273-291, August.
    9. Ming Chang, 1996. "Ramsey pricing in a hierarchical structure with an application to network-access pricing," Journal of Economics, Springer, vol. 64(3), pages 281-314, October.
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    Citations

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    Cited by:

    1. Wendner, Ronald, 2008. "Consumption Externalities and Pigouvian Ranking -- A Generalized Cobb-Douglas Example," MPRA Paper 8540, University Library of Munich, Germany.
    2. José Manuel González-Páramo & Diego Martínez López, 2002. "Provisión eficiente de inversión pública financiada con impuestos distorsionantes," Economic Working Papers at Centro de Estudios Andaluces E2002/08, Centro de Estudios Andaluces.
    3. repec:ebl:ecbull:v:8:y:2004:i:3:p:1-9 is not listed on IDEAS
    4. Wendner, Ronald & Goulder, Lawrence H., 2008. "Status Effects, Public Goods Provision, and the Excess Burden," MPRA Paper 8260, University Library of Munich, Germany.
    5. Wendner, Ronald, 2010. "Ramsey, Pigou, and a Consumption Externality," MPRA Paper 21356, University Library of Munich, Germany.
    6. A. Sanchez & Diego Martinez, 2011. "Optimization in Non-Standard Problems. An Application to the Provision of Public Inputs," Computational Economics, Springer;Society for Computational Economics, vol. 37(1), pages 13-38, January.
    7. Diego Martinez Lopez & A. Jesus Sanchez Fuentes, 2006. "On the optimal level of public inputs," Working Papers 06.34, Universidad Pablo de Olavide, Department of Economics, revised Mar 2008.
    8. repec:ebl:ecbull:v:8:y:2006:i:4:p:1-6 is not listed on IDEAS
    9. Ronald Wendner, 2014. "Ramsey, Pigou, Heterogeneous Agents, and Nonatmospheric Consumption Externalities," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 16(3), pages 491-521, June.
    10. Clive Fraser & Ali al-Nowaihi, 2006. "Comparing the first-best and second-best provision of a club good: an example," Economics Bulletin, AccessEcon, vol. 8(4), pages 1-6.
    11. Wendner, Ronald & Goulder, Lawrence H., 2008. "Status effects, public goods provision, and excess burden," Journal of Public Economics, Elsevier, vol. 92(10-11), pages 1968-1985, October.
    12. Diego Martinez-Lopez, 2004. "The optimal provision of public inputs in a second best scenario," Economics Bulletin, AccessEcon, vol. 8(3), pages 1-9.
    13. Mattos, Enlinson & Terra, Rafael, 2016. "Cash-cum-in-kind transfers and income tax function," Textos para discussão 414, FGV/EESP - Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
    14. Aronsson, Thomas & Johansson-Stenman, Olof, 2014. "State-variable public goods and social comparisons," Journal of Environmental Economics and Management, Elsevier, vol. 68(2), pages 390-410.
    15. repec:ebl:ecbull:v:8:y:2007:i:9:p:1-10 is not listed on IDEAS
    16. Diego Martínez López & A. Jesús Sánchez Fuentes, "undated". "Optimal Provision Of Public Inputs In A Second Best Scenario (*)," Working Papers 17-05 Classification-JEL , Instituto de Estudios Fiscales.
    17. Thomas Gaube, 2005. "Financing Public Goods with Income Taxation: Provision Rules vs. Provision Level," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(3), pages 319-334, May.
    18. A. Jesus Sanchez Fuentes & Diego Martinez Lopez, 2006. "A new approach to solve non-regular constrained optimization problems. An application to optimal provision of public inputs," Working Papers 06.35, Universidad Pablo de Olavide, Department of Economics.
    19. Diego Martinez & Tomas Sjögren, 2009. "Can Labor Market Imperfections Cause Overprovision of Public Inputs?," Working Papers 09.13, Universidad Pablo de Olavide, Department of Economics.
    20. Ming Chang & Hsiao-Ping Peng, 2012. "Laffer effect, gross substitution, marginal cost of public funds and the level property of public good provision," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(5), pages 650-659, October.

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