Repeated Interaction, Redistribution, and the Public Provision of Private Goods

Abstract

The public provision of private goods can be used as a self-selection device to identify income groups. This allows cost efficient redistribution between income groups even if the government cannot observe the individuals' incomes. This paper examines how redistribution through public provision of private goods extends to the case of repeated interaction between government and transfer recipients. By implementing the self-selection device, the government gains information about the households which facilitates redistributive transactions in the future. This, in turn, may trigger strategic behavior of households and weaken the self-selection mechanism.

JEL Classification: H42, H2