Financing of Public Goods through Taxation in a General Equilibrium Economy: Experimental Evidence

Juergen Huber, Martin Shubik and Shyam Sunder
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Juergen Huber: University of Innsbruck

No 1830R, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We compare laboratory general equilibrium economies in which maintenance of a depreciating public facility is financed either by anonymous voluntary contributions or taxes. Agents individually allocate their private goods between consumption and investment in production. The experimental economies sustain public goods at 80-90 percent of the infinite horizon but 25-30 percent above the finite horizon optimum. Payoff efficiency is around 90 percent. This contrasts with rapid decline of public goods under voluntary contributions. When subjects have the choice between a system with voluntary contributions or taxation, 23 out of 24 voting decisions favor taxation. Taxation appears to be superior on grounds of both long run efficiency and fairness. Economy is too complex for subjects to solve for optimally, but simple institutional constraints yield aggregate efficiency.

Keywords: Public goods; Experiment; Voting; Taxation; Evolution of institutions (search for similar items in EconPapers)
JEL-codes: C72 C91 C92 G10 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2011-10, Revised 2013-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Financing of public goods through taxation in a general equilibrium economy: Experimental evidence (2018)
Working Paper: Financing of Public Goods through Taxation in a General Equilibrium Economy: Experimental Evidence (2017)
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