Public Provision of Private Goods, Tagging and Optimal Income Taxation with Heterogeneity in Needs

48 Pages Posted: 14 Dec 2010

See all articles by Spencer Bastani

Spencer Bastani

IFAU - Institute for Labour Market Policy Evaluation; Linnaeus University - Department of Economics and Statistics; Research Institute of Industrial Economics (IFN)

Soren Blomquist

Uppsala University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Luca Micheletto

Bocconi University

Multiple version iconThere are 2 versions of this paper

Date Written: December 13, 2010

Abstract

Previous literature has shown that public provision of private goods can be a welfare-enhancing device in second-best settings where governments pursue redistributive goals. However, three issues have so far been neglected. First, the case for supplementing an optimal nonlinear income tax with public provision of private goods has been made in models where agents differ only in terms of market ability. Second, the magnitude of the welfare gains achievable through public provision schemes has not been assessed. Third, the similarities/differences between public provision schemes and tagging schemes have not been thoroughly analyzed. Our purpose in this paper is therefore threefold: first, to extend previous contributions by incorporating in the theoretical analysis both heterogeneity in market ability and in the need for the publicly provided good; second, to perform numerical simulations to quantify the size of the potential welfare gains achievable by introducing a public provision scheme, and to characterize the conditions under which these welfare gains are sizeable; finally, to compare the welfare gains from public provision with the welfare gains from tagging.

Keywords: optimal income taxation, in-kind transfers, tagging

JEL Classification: H21, H42

Suggested Citation

Bastani, Spencer and Blomquist, Soren and Micheletto, Luca, Public Provision of Private Goods, Tagging and Optimal Income Taxation with Heterogeneity in Needs (December 13, 2010). CESifo Working Paper Series No. 3275, Available at SSRN: https://ssrn.com/abstract=1724587

Spencer Bastani

IFAU - Institute for Labour Market Policy Evaluation ( email )

Box 513
751 20 Uppsala
Sweden

Linnaeus University - Department of Economics and Statistics ( email )

Växjö, 351 06
Sweden

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Soren Blomquist

Uppsala University - Department of Economics ( email )

Box 513
SE-75120 Uppsala
Sweden
+46 18 471 1102 (Phone)
+46 18 471 1478 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Luca Micheletto (Contact Author)

Bocconi University ( email )

Via Sarfatti 25
20136 Milan, MI 20136
Italy

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
40
Abstract Views
536
PlumX Metrics