Working Paper: NBER ID: w13827
Authors: Hanming Fang; Peter Norman
Abstract: This paper shows that public provision of private goods may be justified on pure efficiency grounds in an environment where individuals consume both public and private goods. The government's involvement in the provision of private goods provides it with information about individuals' private good purchases that facilitates more efficient revenue extraction for the provision of public goods. We show that public provision of the private good improves economic efficiency under a condition that is always fulfilled under stochastic independence and satisfied for an open set of joint distributions. Our model is an example where there is efficiency loss from separating revenue and expenditure problems in public finance, and is therefore of more general interest for the study of optimal taxation.
Keywords: No keywords provided
JEL Codes: D61; D82; H21; H42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| public provision of private goods (H42) | economic efficiency (D61) |
| government involvement in private goods (H42) | improved public goods funding (H49) |
| public provision of private goods (H42) | probability of public good provision (H41) |
| joint provision mechanism (D10) | social welfare (I38) |
| separating revenue and expenditure decisions (H69) | inefficiencies (D61) |