Optimal Income Taxation and Public-Goods Provision with Preference and Productivity Shocks

Felix Bierbrauer ()
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Felix Bierbrauer: Max Planck Institute for Research on Collective Goods, Bonn

No 2010_18, Discussion Paper Series of the Max Planck Institute for Research on Collective Goods from Max Planck Institute for Research on Collective Goods

Abstract: We study how an optimal income tax and an optimal public-goods provision rule respond to preference and productivity shocks. A conventional Mirrleesian treatment is shown to provoke manipulations of the policy mechanism by individuals with similar interests. We therefore extend the Mirrleesian model so as to include a requirement of coalition-proofness. The main results are the following: first, the possibility of preference shocks yields a new set of collective incentive constraints. Productivity shocks have no such implication. Second, the optimal policy gives rise to a positive correlation between the public-goods provision level, the extent of redistribution and marginal tax rates.

Keywords: Public Goods; Optimal Taxation; Mechanism Design (search for similar items in EconPapers)
JEL-codes: D71 D82 H21 H41 (search for similar items in EconPapers)
Date: 2010-05
New Economics Papers: this item is included in nep-pbe and nep-pub
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:mpg:wpaper:2010_18

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