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Optimal Taxes and User Fees in a Growing Economy with Excludable and Nonexcludable Public Inputs

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  • Fu-Sheng Hung
  • Chien-Yin Chen

Abstract

This paper examines optimal policies on taxation and user fees in a model where government spending is productive, rival, and congestive, and can be further classified as excludable and nonexcludable public inputs. We propose functions for the services of excludable and nonexcludable public inputs received by the individual firm that allow the individual firm to choose its usage of public inputs. Under this setting, the user fee will influence the individual's incentive in determining his usage of public inputs. We find that an increase in the degree of congestion, under the first- and second-best optima, should be associated with an increase in the user fee to induce the efficient usage of public inputs. This conclusion contradicts recent studies but accords well with economic intuitions.

Suggested Citation

  • Fu-Sheng Hung & Chien-Yin Chen, 2013. "Optimal Taxes and User Fees in a Growing Economy with Excludable and Nonexcludable Public Inputs," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 69(2), pages 194-214, June.
  • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(201206)69:2_194:otaufi_2.0.tx_2-a
    DOI: 10.1628/001522108X666935
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    More about this item

    Keywords

    public inputs; excludability; congestion; economic growth; user fee;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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