Financing of Public Goods Through Taxation in a General Equilibrium Economy: Experimental Evidence

40 Pages Posted: 18 Apr 2013

See all articles by Juergen Huber

Juergen Huber

University of Innsbruck; University of Vienna - Department of Finance

Martin Shubik

Yale University - School of Management; Yale University - Cowles Foundation

Shyam Sunder

Yale University - School of Management; Yale University - Cowles Foundation

Multiple version iconThere are 2 versions of this paper

Date Written: April 17, 2013

Abstract

We compare laboratory general equilibrium economies in which maintenance of a depreciating public facility is financed either by anonymous voluntary contributions or taxes. Agents individually allocate their private goods between consumption and investment in production. The experimental economies sustain public goods at 80-90 percent of the infinite horizon but 25-30 percent above the finite horizon optimum. Payoff efficiency is around 90 percent. This contrasts with rapid decline of public goods under voluntary contributions. When subjects have the choice between a system with voluntary contributions or taxation, 23 out of 24 voting decisions favor taxation. Taxation appears to be superior on grounds of both long run efficiency and fairness. Economy is too complex for subjects to solve for optimally, but simple institutional constraints yield aggregate efficiency.

Keywords: Public goods, Experiment, Voting, Taxation, Evolution of institutions

JEL Classification: C72, C91, C92, G10

Suggested Citation

Huber, Juergen and Shubik, Martin and Sunder, Shyam, Financing of Public Goods Through Taxation in a General Equilibrium Economy: Experimental Evidence (April 17, 2013). Cowles Foundation Discussion Paper No. 1830R. Available at SSRN: https://ssrn.com/abstract=2252670

Juergen Huber

University of Innsbruck ( email )

Universit├Ątsstra├če 15
Innsbruck, Innsbruck 6020
Austria

University of Vienna - Department of Finance ( email )

Bruenner Strasse 72
Vienna, 1210
Austria

Martin Shubik

Yale University - School of Management ( email )

Box 208200
New Haven, CT 06520-8200
United States

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States
203-432-3694 (Phone)
203-432-6167 (Fax)

HOME PAGE: http://cowles.econ.yale.edu/P/au/d_shubik.htm

Shyam Sunder (Contact Author)

Yale University - School of Management ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-6160 (Phone)

HOME PAGE: http://www.som.yale.edu/faculty/sunder/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
48
Abstract Views
421
PlumX Metrics