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Funding Public Goods through Dedicated Taxes on Private Goods

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  • Nathan W. Chan
  • Matthew J. Kotchen

Abstract

We examine dedicated taxes (i.e., taxes on private goods used to finance public good provision) in a game-theoretic model of impure public goods. We show that a dedicated tax can increase or decrease demand for the taxed good. The optimal dedicated tax generally cannot achieve the Pareto-optimal allocation, but it can generate a conditionally efficient equilibrium with comparatively more or less public good provision, depending in part on complementarity or substitutability between the private and public good. We also demonstrate a neutrality result: when individuals can make direct donations, sufficiently low dedicated taxes will not impact equilibrium allocation.

Suggested Citation

  • Nathan W. Chan & Matthew J. Kotchen, 2022. "Funding Public Goods through Dedicated Taxes on Private Goods," Land Economics, University of Wisconsin Press, vol. 98(3), pages 428-439.
    • Handle: RePEc:uwp:landec:v:98:y:2022:i:3:p:428-439
    Note: DOI: 10.3368/le.98.3.082721-0101
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    File URL: http://le.uwpress.org/cgi/reprint/98/3/428
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    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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