Working Paper Series, Uppsala Center for Fiscal Studies, Department of Economics, Uppsala University
Public Provision of Private Goods, Tagging and Optimal Income Taxation with Heterogeneity in Needs
(), Sören Blomquist
() and Luca Micheletto
Abstract: Previous literature has shown that public provision of
private goods can be a welfareenhancing device in second-best settings
where governments pursue redistributive goals. However, three issues have
so far been neglected. First, the case for supplementing an optimal
nonlinear income tax with public provision of private goods has been made
in models where agents dier only in terms of market ability. Second, the
magnitude of the welfare gains achievable through public provision schemes
has not been assessed. Third, the similarities/dierences between public
provision schemes and tagging schemes have not been thoroughly analyzed.
Our purpose in this paper is therefore threefold: rst, to extend previous
contributions by incorporating in the theoretical analysis both
heterogeneity in market ability and in the need for the publicly provided
good; second, to perform numerical simulations to quantify the size of the
potential welfare gains achievable by introducing a public provision
scheme, and to characterize the conditions under which these welfare gains
are sizeable; nally, to compare the welfare gains from public provision
with the welfare gains from tagging.
Keywords: optimal income taxation; in-kind transfers; tagging; (follow links to similar papers)
JEL-Codes: H21; H42; (follow links to similar papers)
51 pages, November 16, 2010
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