Collectively Incentive Compatible Tax Systems
39 Pages Posted: 1 Oct 2006
Date Written: 09/2006
This paper assumes that individuals possess private information both about their abilities and about their valuation of a public good. Individuals can undertake collective actions on order to manipulate the tax system and the decision on public good provision. Consequently, an implementable scheme of taxation has to be collectively incentive compatible. If preferences are additively separable, then an implementable tax systems has the following properties: (i) tax payments do not depend on public goods preferences and (ii) there is no scope for a collective manipulation of public goods preferences. For a quasilinear economy, the optimal tax system is explicitly characterized.
Keywords: Optimal Taxation, Public Good Provision, Revelation of Preferences, Information Aggregation
JEL Classification: D71, D82, H21, H41
Suggested Citation: Suggested Citation