Taxes, welfare costs, and public consumption: The case of the unwitting monopsonist

Cecil Bohanon and James McClure

Public Choice, 1986, vol. 49, issue 3, 235-247

Abstract: Our analysis provides some initial insight into the distributional consequences of alternative tax structures. It has been shown that tax distortions, when incorporated into an expenditure framework, drive a wedge between the price paid by consumers for government goods and the explicit price received by producers. Such a wedge operates as a monopsonistic device that, in the final analysis, can improve the well being of public consumers. Whether this result emerges depends not only on the relative elasticity of demand and supply but also on the institutional setting in which public spending decisions are made. Copyright Martinus Nijhoff Publishers 1986

Date: 1986
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DOI: 10.1007/BF00127341

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