Pawns and Queens Revisited: Public Provision of Private Goods When Individuals Make Mistakes

Posted: 6 Sep 2014

See all articles by Jukka Pirttila

Jukka Pirttila

United Nations - World Institute for Development Economics Research (UNU/WIDER); Tampere University of Technology

Sanna Tenhunen

University of Tampere

Multiple version iconThere are 2 versions of this paper

Date Written: February 2008

Abstract

This paper analyses the optimal tax policy and public provision of private goods when individuals differ in two respects: income-earning ability and rationality. Publicly provided goods should be overprovided or subsidised, relative to the decentralised optimum, if society’s marginal valuation of them exceeds the individual valuation and if these goods help relax the self-selection constraints, formulated in a new way. Optimal marginal income tax rates are shown to differ from the standard rules if publicly provided goods and labour supply are related.

Keywords: Behavioural economics, Optimal taxation, Public provision

JEL Classification: H21, H42

Suggested Citation

Pirttila, Jukka and Tenhunen, Sanna, Pawns and Queens Revisited: Public Provision of Private Goods When Individuals Make Mistakes (February 2008). International Tax and Public Finance, Vol. 15, No. 5, 2008. Available at SSRN: https://ssrn.com/abstract=2491787

Jukka Pirttila (Contact Author)

United Nations - World Institute for Development Economics Research (UNU/WIDER) ( email )

Katajanokanlaituri 6B
Helsinki, FIN-00160
Finland

Tampere University of Technology ( email )

P.O. 541, Korkeakoulunkatu 8 (Festia building)
Tampere, FI-33101
Finland

Sanna Tenhunen

University of Tampere ( email )

Tampere, FIN-33101
Finland

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