Distortionary Taxation and the Free-Rider Problem

28 Pages Posted: 7 Mar 2006

See all articles by Felix J. Bierbrauer

Felix J. Bierbrauer

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods

Date Written: March 2006

Abstract

This paper derives a version of the Samuelson rule, which takes not only the marginal costs of public funds into account but also the desirability of preference revelation. Under a linear income tax more able individuals suffer from a larger utility loss if taxes are raised to cover the cost of public good provision. This implies that these individuals are tempted to understate their valuation of the public good. Likewise, less productive individuals are inclined to exaggerate their valuation. These incentive concerns require the use of excessive taxes. They ensure a truthful revelation of preferences for the public good. Under an optimal utilitarian tax constitution, individuals are not granted influence on public good provision if the taxes needed to induce informative behavior are prohibitively high.

Keywords: Public Good Provision, Revelation of Preferences, Distortionary

JEL Classification: D71, D82, H21, H41

Suggested Citation

Bierbrauer, Felix J., Distortionary Taxation and the Free-Rider Problem (March 2006). MPI Collective Goods Preprint No. 2006/6. Available at SSRN: https://ssrn.com/abstract=888702 or http://dx.doi.org/10.2139/ssrn.888702

Felix J. Bierbrauer (Contact Author)

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

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