IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Public Provision of Private Goods and Nondistortionary Marginal Tax Rates

  • Blomquist, Sören

    ()

    (Department of Economics)

  • Christiansen, Vidar

    ()

    (Department of Economics)

The incidence and efficiency losses of taxes have usually been analysed in isolation from public expenditures. This negligence of the expenditure side may imply a serious misperception of the effects of marginal tax rates. The reason is that part of the marginal tax may in fact be payment for publicly provided commodities and reflect a cost that the consumers should bear in order to face the right incentives. Hence, part of the marginal tax serves the same role as a market price in the sense that it conveys information about a real social marginal cost of working more hours. We develop this idea formally by studying an optimal income tax model in combination with a type of public provision scheme not analyzed before; the provision level is individualized and positively associated with the individuals’ labour supply. As examples we discuss day care, elderly care, primary education and health care. We show that there is a gain in efficiency if public provision of such a service replaces market purchases. We also show that it is necessary for efficiency that marginal income tax rates are higher than in economies where the services are purchased in the market. This is because the optimal tax should be designed so as to face the taxpayers with the real cost of providing the services. Hence, it might very well be that economies with higher marginal tax rates have less severe distortions than economies with lower marginal tax rates. We also explore whether an efficiency gain is achievable by alternatively making day care expenses tax deductible and derive a negative conclusion.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://uu.diva-portal.org/smash/get/diva2:53134/FULLTEXT01.pdf
Download Restriction: no

Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 2007:7.

as
in new window

Length: 17 pages
Date of creation: 12 Jan 2007
Date of revision:
Handle: RePEc:hhs:uunewp:2007_007
Contact details of provider: Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
Web page: http://www.nek.uu.se/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Chetty, Nadarajan, 2009. "Is the Taxable Income Elasticity Sufficient to Calculate Deadweight Loss? The Implications of Evasion and Avoidance," Scholarly Articles 9748527, Harvard University Department of Economics.
  2. Österholm, Pär, 2006. "Incorporating Judgement in Fan Charts," Working Paper Series 2006:30, Uppsala University, Department of Economics.
  3. Janet Currie & Firouz Gahvari, 2008. "Transfers in Cash and In-Kind: Theory Meets the Data," Journal of Economic Literature, American Economic Association, vol. 46(2), pages 333-83, June.
  4. Spencer Bastani & Sören Blomquist & Luca Micheletto, 2010. "Public Provision of Private Goods, Tagging and Optimal Income Taxation withHeterogeneity in Needs," CESifo Working Paper Series 3275, CESifo Group Munich.
  5. Bertil Holmlund & Qian Liu & Oskar Nordström Skans, 2006. "Mind the Gap? Estimating the Effects of Postponing Higher Education," CESifo Working Paper Series 1792, CESifo Group Munich.
  6. Björnerstedt, Jonas & Westermark, Andreas, 2006. "Delay in Bargaining with Externalities," Working Paper Series 2006:29, Uppsala University, Department of Economics.
  7. 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.
  8. Arnold C. Harberger, 1962. "The Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 70, pages 215.
  9. Alessandro Balestrino, 2000. "Mixed Tax Systems and the Public Provision of Private Goods," International Tax and Public Finance, Springer, vol. 7(4), pages 463-478, August.
  10. CREMER, Helmuth & DELLIS, Arnaud & PESTIEAU, Pierre, . "Family size and optimal income taxation," CORE Discussion Papers RP -1603, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  11. Wojciech Kopczuk, 2004. "Tax bases, tax rates and the elasticity of reported income," Discussion Papers 0304-15, Columbia University, Department of Economics.
  12. Guesnerie Roger & Seade Jesus, 1981. "Nonlinear pricing in a finite economy," CEPREMAP Working Papers (Couverture Orange) 8118, CEPREMAP.
  13. Per Engstrom & Bertil Holmlund, 2009. "Tax evasion and self-employment in a high-tax country: evidence from Sweden," Applied Economics, Taylor & Francis Journals, vol. 41(19), pages 2419-2430.
  14. Edmark, Karin & Ågren, Hanna, 2008. "Identifying strategic interactions in Swedish local income tax policies," Journal of Urban Economics, Elsevier, vol. 63(3), pages 849-857, May.
  15. Edward C. Prescott, 2004. "Why do Americans Work so Much More than Europeans?," NBER Working Papers 10316, National Bureau of Economic Research, Inc.
  16. Post, Erik, 2007. "Macroeconomic imbalances and exchange rate regime shifts," Working Paper Series 2007:4, Uppsala University, Department of Economics.
  17. Eric Bonsang, 2007. "How do middle-aged children allocate time and money transfers to their older parents in Europe?," Empirica, Springer, vol. 34(2), pages 171-188, April.
  18. Blomquist, Suren & Christiansen, Vidar, 1995. " Public Provision of Private Goods as a Redistributive Device in an Optimum Income Tax Model," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 547-67, December.
  19. Jonathan Guryan & Erik Hurst & Melissa Schettini Kearney, 2008. "Parental Education and Parental Time With Children," NBER Working Papers 13993, National Bureau of Economic Research, Inc.
  20. Blau, David & Currie, Janet, 2006. "Pre-School, Day Care, and After-School Care: Who's Minding the Kids?," Handbook of the Economics of Education, Elsevier.
  21. 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.
  22. Carlsson, Mikael & Westermark, Andreas, 2006. "Monetary Policy and Staggered Wage Bargaining when Prices are Sticky," Working Paper Series 2006:31, Uppsala University, Department of Economics, revised 05 Jun 2009.
  23. Jordahl, Henrik & Liang, Che-Yuan, 2006. "Merged Municipalities, Higher Debt: On Free-riding and the Common Pool Problem in Politics," Working Paper Series 679, Research Institute of Industrial Economics.
  24. Joseph E. Stiglitz, 1981. "Self-Selection and Pareto Efficient Taxation," NBER Working Papers 0632, National Bureau of Economic Research, Inc.
  25. Merrouche, Ouarda, 2007. "The Long Term Effect of Education Spending Decentralization on Human Capital in Spain," Working Paper Series 2007:3, Uppsala University, Department of Economics.
  26. Alexius, Annika & Post, Erik, 2006. "Cointegration and the stabilizing role of exchange rates," Working Paper Series 2006:8, Uppsala University, Department of Economics.
  27. Emmanuel Saez, 1999. "The Effect of Marginal Tax Rates on Income: A Panel Study of 'Bracket Creep'," NBER Working Papers 7367, National Bureau of Economic Research, Inc.
  28. Gruber, Jon & Saez, Emmanuel, 2002. "The elasticity of taxable income: evidence and implications," Journal of Public Economics, Elsevier, vol. 84(1), pages 1-32, April.
  29. Martin Feldstein, 1993. "The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the1986 Tax Reform Act," NBER Working Papers 4496, National Bureau of Economic Research, Inc.
  30. Sören Blomquist & Vidar Christiansen & Luca Micheletto, 2008. "Public Provision of Private Goods and Nondistortionary Marginal Tax Rates," CESifo Working Paper Series 2303, CESifo Group Munich.
  31. Hallberg, Daniel, 2006. "Cross-national differences in income poverty among Europe´s 50+," Working Paper Series 2006:14, Uppsala University, Department of Economics.
  32. Engström, Per & Kolm, Ann-Sofie & Liang, Che-Yuan, 2006. "Maternal Addiction to Parental Leave," Working Paper Series 2006:28, Uppsala University, Department of Economics.
  33. Aronsson, Thomas & Blomquist, Sören & Micheletto, Luca, 2007. "Where Should the Elderly Live and Who Should Pay for their Care? A Study in Demographics and Geographical Economic," Umeå Economic Studies 702, Umeå University, Department of Economics.
  34. Richard Rogerson, 2007. "Taxation and Market Work: Is Scandinavia an Outlier?," NBER Working Papers 12890, National Bureau of Economic Research, Inc.
  35. Chen, Jie, 2006. "Housing Wealth and Aggregate Consumption in Sweden," Working Paper Series 2006:16, Uppsala University, Department of Economics.
  36. Kjellberg, David, 2006. "Measuring Expectations," Working Paper Series 2006:9, Uppsala University, Department of Economics.
  37. Martin Feldstein, 1999. "Tax Avoidance And The Deadweight Loss Of The Income Tax," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 674-680, November.
  38. Feldstein, Martin, 1995. "Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act," Scholarly Articles 2766676, Harvard University Department of Economics.
  39. Schroyen, Fred, 2003. "Redistributive taxation and the household: the case of individual filings," Journal of Public Economics, Elsevier, vol. 87(11), pages 2527-2547, October.
  40. Andersson, Christian, 2007. "Teacher density and student achievement in Swedish compulsory schools," Working Paper Series 2007:4, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  41. 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.
  42. Merrouche, Ouarda, 2007. "The Long Term Impact of French Settlement on Education in Algeria," Working Paper Series 2007:2, Uppsala University, Department of Economics.
  43. Angelov, Nikolay, 2006. "Modelling firm mergers as a roommate problem," Working Paper Series 2006:10, Uppsala University, Department of Economics.
  44. 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).
  45. Kaplow, Louis, 1998. "Tax and non-tax distortions," Journal of Public Economics, Elsevier, vol. 68(2), pages 303-306, May.
  46. Post, Erik, 2006. "Foreign exchange market interventions as monetary policy," Working Paper Series 2006:21, Uppsala University, Department of Economics.
  47. Ågren, Martin, 2006. "Prospect Theory and Higher Moments," Working Paper Series 2006:24, Uppsala University, Department of Economics.
  48. Eklöf, Matias & Hallberg, Daniel, 2006. "Estimating retirement behavior with special early retirement offers," Working Paper Series 2006:13, Uppsala University, Department of Economics.
Full references (including those not matched with items on IDEAS)

This item is featured on the following reading lists or Wikipedia pages:

  1. Public Provision of Private Goods and Nondistortionary Marginal Tax Rates (AEJ:EP 2010) in ReplicationWiki

When requesting a correction, please mention this item's handle: RePEc:hhs:uunewp:2007_007. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Katarina Grönvall)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.