Scandinavian Working Papers in Economics

Umeå Economic Studies,
Umeå University, Department of Economics

No 628: Public Provision of Private Goods and Equilibrium Unemployment

Thomas Aronsson (), Mikael Markström () and Tomas Sjögren ()
Additional contact information
Thomas Aronsson: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden
Mikael Markström: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden
Tomas Sjögren: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden

Abstract: This paper concerns public provision of a private good in a two-type model with optimal nonlinear income taxation. We assume that the wage rates are determined by bargaining between unions and firms, meaning that the equilibrium is characterized by unemployment. We show that, if the labor market is imperfectly competitive, additional mechanisms arise via the self-selection constraint, which may justify either more or less public provision of the private good than under perfect competition. Furthermore, public provision of private goods becomes a tool to influence the employment.

Keywords: Public provision of private goods; nonlinear taxation; unemployment

JEL-codes: H21; H23; J51

21 pages, February 27, 2004

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