Are User Fees Really Regressive?
30 Pages Posted: 12 Jul 2012
Date Written: July 12, 2012
Abstract
This paper studies the aggregate and distributional implications of introducing user fees for publicly provided excludable public goods into a model with consumption and income taxes. The setup is a neoclassical growth model where agents differ in earnings and second-best policy is chosen by a Ramsey government. Our main result is that the adoption of user fees by the Ramsey government not only increases aggregate efficiency, but it also decreases inequality. This result is in contrast to common view and policy practice.
Keywords: user fees, Ramsey taxation, efficiency, inequality
JEL Classification: H400, H200, D600
Suggested Citation: Suggested Citation