Habit Formation and the Pareto-Efficient Provision of Public Goods

Thomas Aronsson () and Ronnie Schöb ()
Additional contact information
Thomas Aronsson: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden, http://www.econ.umu.se
Ronnie Schöb: Freie Universität Berlin
Authors registered in the RePEc Author Service: Ronnie Schoeb

No 944, Umeå Economic Studies from Umeå University, Department of Economics

Abstract: This paper examines the implications of habit formation in private and public consumption for the Pareto-efficient provision of public goods, based on a two-period model with nonlinear taxation. If the public good supply is time-invariant, the presence of habit formation generally alters the standard rules for public good provision. In contrast, if the public good is a flow-variable such that the government directly decides on the level of the public good in each period, habit formation leads to a modification of the first best Samuelson condition only if the degrees of habituation differ for private and public consumption. Since habit formation affects the incentives to relax the self-selection constraint through public good provision, however, habituation alters the second-best analogue to the Samuelson condition also when the degrees of habituation in private and public consumption coincide.

Keywords: Public good provision; Samuelson condition; habit formation; optimal taxation (search for similar items in EconPapers)
JEL-codes: D60 H21 H41 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2017-01-16
New Economics Papers: this item is included in nep-pub
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: Habit formation and the pareto-efficient provision of public goods (2022)
Working Paper: Habit formation and the Pareto-efficient provision of public goods (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:umnees:0944

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