Funding Public Goods through Dedicated Taxes on Private Goods

Nathan Chan and Matthew J. Kotchen

Land Economics, 2022, vol. 98, issue 3, 428-439

Abstract: We examine dedicated taxes (i.e., taxes on private goods used to finance public good provision) in a game-theoretic model of impure public goods. We show that a dedicated tax can increase or decrease demand for the taxed good. The optimal dedicated tax generally cannot achieve the Pareto-optimal allocation, but it can generate a conditionally efficient equilibrium with comparatively more or less public good provision, depending in part on complementarity or substitutability between the private and public good. We also demonstrate a neutrality result: when individuals can make direct donations, sufficiently low dedicated taxes will not impact equilibrium allocation.

JEL-codes: H21 H41 (search for similar items in EconPapers)
Date: 2022
Note: DOI: 10.3368/le.98.3.082721-0101
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Persistent link: https://EconPapers.repec.org/RePEc:uwp:landec:v:98:y:2022:i:3:p:428-439

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