Optimal Income Taxation, Public-Goods Provision and Public-Sector Pricing: A Contribution to the Foundations of Public Economics

57 Pages Posted: 12 Nov 2004

See all articles by Martin F. Hellwig

Martin F. Hellwig

Max Planck Institute for Research on Collective Goods; University of Bonn - Department of Economics; European Corporate Governance Institute (ECGI)

Date Written: November 2004

Abstract

The paper develops an integrated model of optimal nonlinear income taxation, public-goods provision and pricing in a large economy. With asymmetric information about labour productivities and publicgoods preferences, the multidimensional mechanism design problem becomes tractable by requiring renegotiation proofness of the final allocation of private goods and admission tickets for excludable public goods. Under an affiliation assumption on the underlying distribution, optimal income taxation, public-goods provision and admission fees have the same qualitative properties as in unidimensional models. These properties are obtained for utilitarian welfare maximization and for a Ramsey-Boiteux formulation with interim participation constraints.

Keywords: Optimal Income Taxation, Public Goods, Public-Sector Pricing, Multidimensional Mechanism Design, Ramsey-Boiteux Pricing

JEL Classification: D82, H20, H40

Suggested Citation

Hellwig, Martin F., Optimal Income Taxation, Public-Goods Provision and Public-Sector Pricing: A Contribution to the Foundations of Public Economics (November 2004). Available at SSRN: https://ssrn.com/abstract=618981 or http://dx.doi.org/10.2139/ssrn.618981

Martin F. Hellwig (Contact Author)

Max Planck Institute for Research on Collective Goods ( email )

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University of Bonn - Department of Economics

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