The dual nature of public goods and congestion: the role of fiscal policy revisited

Santanu Chatterjee () and Sugata Ghosh ()

Canadian Journal of Economics, 2011, vol. 44, issue 4, 1471-1496

Abstract: The role of fiscal policy is examined when public goods provide both productive and utility services. In the presence of congestion, the consumption tax is shown to be distortionary. Optimal fiscal policy involves using consumption-based instruments in conjunction with the income tax. An income tax-financed increase in government spending dominates both lump-sum and consumption tax-financing. Replacing the lump-sum tax with an income tax to finance a given level of spending dominates introducing an equivalent consumption tax. These results contrast sharply with the literature, where the consumption tax is generally viewed as the least distortionary source of public finance.

JEL-codes: E21 E62 H21 H41 H54 (search for similar items in EconPapers)
Date: 2011
References: Add references at CitEc
Citations: View citations in EconPapers (24)

Downloads: (external link)
https://doi.org/10.1111/j.1540-5982.2011.01681.x (text/html)
access restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cje:issued:v:44:y:2011:i:4:p:1471-1496

Ordering information: This journal article can be ordered from
https://www.economic ... ionen/membership.php

Access Statistics for this article

Canadian Journal of Economics is currently edited by Zhiqi Chen

More articles in Canadian Journal of Economics from Canadian Economics Association Canadian Economics Association Prof. Werrner Antweiler, Treasurer UBC Sauder School of Business 2053 Main Mall Vancouver, BC, V6T 1Z2. Contact information at EDIRC.
Bibliographic data for series maintained by Prof. Werner Antweiler ().