Scandinavian Working Papers in Economics

Umeå Economic Studies,
Umeå University, Department of Economics

No 902: Adaptation, Taxation, and Public Goods

Thomas Aronsson () and Ronnie Schöb ()
Additional contact information
Thomas Aronsson: Department of Economics, Umeå School of Business and Economics, Postal: Umeå University, S 901 87 Umeå, Sweden
Ronnie Schöb: School of Business and Economics, Postal: Freie Universität Berlin, D–14195 Berlin, Germany

Abstract: This paper shows how the first-best and second-best rules for optimal public good provision depend on the adaptation to private and public consumption. Adaptation in private consumption typically leads to over-provision relative to the Samuelson condition, while adaptation in public consumption works the other way around. The two sources of adaptation only cancel out in the extreme case of full adaptation.

Keywords: Public goods; adaptation; habit-formation; optimal taxation

JEL-codes: D03; D60; H21; H41

6 pages, December 9, 2014

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