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A unified approach to the revelation of public goods preferences and to optimal income taxation

  • Felix Bierbrauer

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    (Max Planck Institute for Research on Collective Goods, Bonn)

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    We study a large economy model in which individuals have private information about their productive abilities and their preferences for public goods. A mechanism design approach is used to characterize implementable tax and expenditure policies. A robustness requirement in the sense of Bergemann and Morris (2005) yields individual incentive compatibility constraints that are equivalent to those in the theory of optimal income taxation in the tradition of Mirrlees (1971). Adding a requirement of coalition-proofness yields a set of collective incentive conditions which are akin those in the literature on public goods provision under private information on preferences, in the tradition of Clarke (1971) and Groves (1973).

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    File URL: http://www.coll.mpg.de/pdf_dat/2008_39online.pdf
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    Paper provided by Max Planck Institute for Research on Collective Goods in its series Working Paper Series of the Max Planck Institute for Research on Collective Goods with number 2008_39.

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    Date of creation: Oct 2008
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    Handle: RePEc:mpg:wpaper:2008_39
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    1. Stephen Morris & Dirk Bergemann, 2004. "Robust Mechanism Design," Yale School of Management Working Papers ysm380, Yale School of Management.
    2. Green, Jerry & Laffont, Jean-Jacques, 1977. "Characterization of Satisfactory Mechanisms for the Revelation of Preferences for Public Goods," Econometrica, Econometric Society, vol. 45(2), pages 427-38, March.
    3. Judd, Kenneth L., 1985. "Redistributive taxation in a simple perfect foresight model," Journal of Public Economics, Elsevier, vol. 28(1), pages 59-83, October.
    4. Ehud Kalai, 2002. "Large Robust Games," Discussion Papers 1350, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    5. Bernheim, B. Douglas & Peleg, Bezalel & Whinston, Michael D., 1987. "Coalition-Proof Nash Equilibria I. Concepts," Journal of Economic Theory, Elsevier, vol. 42(1), pages 1-12, June.
    6. d'Aspremont, Claude & Gerard-Varet, Louis-Andre, 1979. "Incentives and incomplete information," Journal of Public Economics, Elsevier, vol. 11(1), pages 25-45, February.
    7. Hellwig, Martin, 2004. "Optimal income taxation, public-goods provision and public-sector pricing : a contribution to the foundations of public economics," Papers 04-42, Sonderforschungsbreich 504.
    8. Hellwig, Martin F., 2007. "A contribution to the theory of optimal utilitarian income taxation," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1449-1477, August.
    9. Armstrong, Mark & Rochet, Jean-Charles, 1999. "Multi-dimensional screening:: A user's guide," European Economic Review, Elsevier, vol. 43(4-6), pages 959-979, April.
    10. Zvika Neeman, 1998. "The Relevance of Private Information in Mechanism Design," Papers 0093, Boston University - Industry Studies Programme.
    11. Laffont, J.J. & Martimort, D., 1996. "Collusion Under Asymmetric Information," Papers 95.389, Toulouse - GREMAQ.
    12. Laffont, Jean-Jacques & Martimort, David, 1998. "Mechanism Design with Collusion and Correlation," IDEI Working Papers 81, Institut d'Économie Industrielle (IDEI), Toulouse.
    13. CREMER, Helmuth & PESTIEAU, Pierre & ROCHET, Jean-Charles, 1999. "Direct versus indirect taxation: the design of the tax structure revisited," CORE Discussion Papers 1999010, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    14. Louis Kaplow, 2003. "Public Goods and the Distribution of Income," NBER Working Papers 9842, National Bureau of Economic Research, Inc.
    15. Robin Boadway & Michael Keen, 1991. "Public Goods, Self-Selection and Optimal Income Taxation," Working Papers 828, Queen's University, Department of Economics.
    16. Olszewski, Wojciech, 2004. "Coalition strategy-proof mechanisms for provision of excludable public goods," Games and Economic Behavior, Elsevier, vol. 46(1), pages 88-114, January.
    17. Groves, Theodore, 1973. "Incentives in Teams," Econometrica, Econometric Society, vol. 41(4), pages 617-31, July.
    18. Al-Najjar, Nabil I., 2004. "Aggregation and the law of large numbers in large economies," Games and Economic Behavior, Elsevier, vol. 47(1), pages 1-35, April.
    19. Paul Beaudry & Charles Blackorby & Dezsö Szalay, 2009. "Taxes and Employment Subsidies in Optimal Redistribution Programs," American Economic Review, American Economic Association, vol. 99(1), pages 216-42, March.
    20. Ledyard, John O., . "Incentive Compatibility and Incomplete Information," Working Papers 187, California Institute of Technology, Division of the Humanities and Social Sciences.
    21. Judd, Kenneth L., 1985. "The law of large numbers with a continuum of IID random variables," Journal of Economic Theory, Elsevier, vol. 35(1), pages 19-25, February.
    22. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
    23. Cremer, Jacques, 1996. "Manipulations by Coalitions Under Asymmetric Information: The Case of Groves Mechanisms," Games and Economic Behavior, Elsevier, vol. 13(1), pages 39-73, March.
    24. Felix Bierbrauer, 2008. "Optimal Income Taxation, Public Goods Provision and Robust Mechanism Design," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2008_31, Max Planck Institute for Research on Collective Goods.
    25. Gahvari, Firouz, 2006. "On the marginal cost of public funds and the optimal provision of public goods," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1251-1262, August.
    26. Martin F. Hellwig, 2003. "Public-Good Provision with Many Participants," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 589-614.
    27. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May.
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