Consuming Your Way to Efficiency: Public Goods Provision Through Non-Distortionary Tax Lotteries

40 Pages Posted: 15 May 2013

See all articles by Thomas Giebe

Thomas Giebe

Linnaeus University - Department of Economics and Statistics

Paul Schweinzer

University of Klagenfurt

Multiple version iconThere are 2 versions of this paper

Date Written: May 15, 2013

Abstract

We revisit the classical result that financing a pure public good through taxation of private consumption is inefficient. To this standard setup we add a consumption contest in which consumers can win a prize. We show that an appropriately chosen contest — which we call a ‘tax lottery’ — can correct the distortion in private consumption while, at the same time, inducing efficient provision of the public good and balancing the government’s budget. The result does not depend on whether the public good is provided exogenously or dependent on actual tax revenue. We show that neither pure fundraising contests nor a sales tax combined with a ‘simple’ lottery can induce efficiency in the standard environment.

Keywords: public goods, taxation, contests, lotteries

JEL Classification: C700, D700, H000

Suggested Citation

Giebe, Thomas and Schweinzer, Paul, Consuming Your Way to Efficiency: Public Goods Provision Through Non-Distortionary Tax Lotteries (May 15, 2013). CESifo Working Paper Series No. 4228. Available at SSRN: https://ssrn.com/abstract=2265181

Thomas Giebe

Linnaeus University - Department of Economics and Statistics ( email )

Växjö, 351 06
Sweden

Paul Schweinzer (Contact Author)

University of Klagenfurt ( email )

Universitätsstrasse 65-67
Klagenfurt, Carinthia A-9020
Austria

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