Public Provision of Private Goods and Nondistortionary Marginal Tax Rates
Sören Blomquist,
Vidar Christiansen and
Luca Micheletto
No 2303, CESifo Working Paper Series from CESifo
Abstract:
The incidence and efficiency losses of taxes have usually been analysed in isolation from public expenditures. This negligence of the expenditure side may imply a serious misperception of the effects of marginal tax rates. The reason is that part of the marginal tax may in fact be payment for publicly provided goods and reflects a cost that the consumers should bear in order to face the proper incentives. Hence, part of the marginal tax serves the same role as a market price in the sense that it conveys information about a real social cost of working more hours. We develop this idea formally by studying an optimal income tax model in combination with a type of public provision scheme not analyzed before; the provision level is individualized and positively associated with the individual’s labor supply. As examples we discuss child care, elderly care, primary education and health care. We show that there is a gain in efficiency where public provision of such a service replaces market purchases. We also show that it is necessary for efficiency that marginal income tax rates are higher than in economies where the services are purchased in the market. This is because the optimal tax should be designed so as to face the taxpayers with the real cost of providing the services. Hence, it might very well be that economies with higher marginal tax rates have less severe distortions than economies with lower marginal tax rates.
Keywords: nonlinear income taxation; marginal income tax rates; public provision of private goods; in-kind transfers (search for similar items in EconPapers)
JEL-codes: H21 H42 I38 (search for similar items in EconPapers)
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)
Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp2303.pdf (application/pdf)
Related works:
Journal Article: Public Provision of Private Goods and Nondistortionary Marginal Tax Rates (2010) 
Working Paper: Public Provision of Private Goods and Nondistortionary Marginal Tax Rates (2007) 
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:ces:ceswps:_2303
Access Statistics for this paper
More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().