Price Subsidies Versus Public Provision

Sören Blomquist and Vidar Christiansen

International Tax and Public Finance, 1998, vol. 5, issue 3, 283-306

Abstract: The paper investigates whether price subsidization or public provision of a private good, x, is the more efficient redistributional instrument in addition to an optimal nonlinear income tax. The identity of high and low skill individuals is assumed to be private information generating a self-selection constraint. If the high skill person's consumption of x is sufficiently large relative to that of the low skill person, public provision is the better scheme. With the opposite situation the price subsidy may be the preferred instrument. The paper also characterizes the mixed scheme where all the instruments are used optimally. The mixed scheme can be degenerate with only public provision being used in addition to the income tax. At an optimum where both instruments are used, good x is subsidized, the low skill person is supplementing and the high skill person is forced to overconsume. Copyright Kluwer Academic Publishers 1998

Keywords: price subsidy; public provision; private goods; in-kind transfers; optimal taxation (search for similar items in EconPapers)
Date: 1998
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Citations: View citations in EconPapers (17)

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Working Paper: Price Subsidies versus Public Provision (1997)
Working Paper: Price Subsidies versus Public Provision
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DOI: 10.1023/A:1008630110002

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