Imperfect Tax Compliance and the Optimal Provision of Public Goods

Alessandro Balestrino () and Umberto Galmarini
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Umberto Galmarini: University of Insubria, Como, and Catholic University of Milan, Italy

Bulletin of Economic Research, 2003, vol. 55, issue 1, pages 37-52

Abstract: Our aim in this paper is to investigate whether the presence of imperfect income tax compliance affects the optimal provision of public goods within a framework in which public expenditure is financed by a general income tax that also accomplishes redistributive goals. We first derive the income tax structure, and then a generalized Samuelson rule. We argue that, under imperfect income tax compliance, it is desirable to distort public--good supply downwards, in the sense that the sum of marginal rates of substitution between public and private consumption must exceed their marginal rate of transformation. Copyright Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research 2003

Date: 2003
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