Distortionary taxation and the free-rider problem

Felix Bierbrauer ()

International Tax and Public Finance, 2012, vol. 19, issue 5, 732-752

Abstract: This paper derives a version of the Samuelson rule which takes into account that a distortionary Ramsey-tax system is used to finance public-goods provision. Individuals have private information about their public-goods preferences. Moreover, individuals differ in their productive abilities. The incidence of taxation in the Ramsey model implies that more productive individuals have a lower willingness to pay for public goods than less productive individuals. They are therefore tempted to understate their valuation of public goods and less productive individuals are inclined to exaggerate theirs. The paper characterizes an optimal rule for taxation and public-goods provision that eliminates these biases. Copyright Springer Science+Business Media, LLC 2012

Keywords: Distortionary taxation; Public-good provision; Revelation of preferences; Two-dimensional heterogeneity; D71; D82; H21; H41 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:itaxpf:v:19:y:2012:i:5:p:732-752

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DOI: 10.1007/s10797-011-9204-x

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