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Taxation in an economy with private provision of public goods

  • Josef Falkinger

    ()

    (University of Regensburg, Department of Economics, Universitätsstraße 31, D-93053 Regensburg, Germany)

  • Johann K. Brunner

    ()

    (University of Linz, Department of Economics, Altenberger Straße 69, A-4040 Linz, Austria)

This paper analyses the effects of taxation and subsidies in an economy with private provision of a public good. It is shown that in a situation where all individuals contribute, taxation affects the equilibrium allocation if and only if at least one individual's voluntary contribution to the public good has an impact on the aggregate tax payments of the others. We then consider linear nonneutral tax-subsidy schemes and analyse efficiency and uniqueness of the resulting Nash equilibria. We show that an efficient Nash equilibrium, where all individuals contribute, will in general not be unique, and establish a non-uniformity property which a tax-subsidy scheme must fulfil in order to induce a unique interior equilibrium that is efficient. Throughout the paper it is assumed that individuals fully understand and take into account the government's budget constraint.

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Article provided by Springer in its journal Review of Economic Design.

Volume (Year): 4 (1999)
Issue (Month): 4 ()
Pages: 357-379

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Handle: RePEc:spr:reecde:v:4:y:1999:i:4:p:357-379
Note: Received: 3 November 1997 / Accepted: 23 March 1999
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