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Optimal Provision Of Public Inputs In A Second Best Scenario (*)

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  • Diego Martínez López

    () (Centro de Estudios Andaluces and Pablo Olavide University)

  • A. Jesús Sánchez Fuentes

    (Centro de Estudios Andaluces)

Abstract

. This paper studies the optimal provision of public inputs under two different tax settings: with lump-sum taxes and with taxes on labour. After obtaining the optimality rules for the provision of public inputs, a numerical simulation is carried out to compute the level of public spending in each scenario. We find that a second- best rule has to be followed when lump-sum taxes are not available, even though the labour taxes are set optimally. Another result we obtain is that the level of public input provided under the second best scenario is higher than that corresponding to the first best outcome. The effect of changes to some parameters on the level of public input is also studied.

Suggested Citation

  • 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.
  • Handle: RePEc:hpe:wpaper:y:2005:i:17
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    References listed on IDEAS

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    Keywords

    public input; optimal taxation.;

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