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Optimal Income Taxation and Public Good Provision with Endogenous Interest Groups

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  • FELIX BIERBRAUER

Abstract

This paper studies public goods provision when agents differ in earning abilities as well as preferences. Heterogeneity in skills makes redistribution desirable and generates an equity‐efficiency trade‐off. If tax revenues are devoted to a public good, this trade‐off is affected in such a way that income transfers are less desirable. High‐skilled individuals thus have an incentive to exaggerate their preferences for public goods. Analogously, low‐skilled individuals lobby against public good provision. A requirement of collective incentive compatibility eliminates these biases. It implies that income transfers are increased whenever a public good is provided and are decreased otherwise.

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  • Felix Bierbrauer, 2009. "Optimal Income Taxation and Public Good Provision with Endogenous Interest Groups," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 11(2), pages 311-342, April.
    • Handle: RePEc:bla:jpbect:v:11:y:2009:i:2:p:311-342
    DOI: 10.1111/j.1467-9779.2009.01412.x
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    Cited by:

    1. Potrafke Niklas, 2011. "Public Expenditures on Education and Cultural Affairs in the West German States: Does Government Ideology Influence the Budget Composition?," German Economic Review, De Gruyter, vol. 12(1), pages 124-145, February.
    2. Felix J. Bierbrauer, 2014. "Optimal Tax and Expenditure Policy with Aggregate Uncertainty," American Economic Journal: Microeconomics, American Economic Association, vol. 6(1), pages 205-257, February.
    3. Bierbrauer Felix J., 2016. "Effizienz oder Gerechtigkeit?: Ungleiche Einkommen, ungleiche Vermögen und Optimale Steuern," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 17(1), pages 2-24, April.
    4. Pierre C. Boyer & Felix J. Bierbrauer, 2014. "The Pareto-Frontier in a Simple Mirrleesian Model of Income Taxation," Annals of Economics and Statistics, GENES, issue 113-114, pages 185-206.
    5. Niklas Potrafke, 2011. "Does government ideology influence budget composition? Empirical evidence from OECD countries," Economics of Governance, Springer, vol. 12(2), pages 101-134, June.
    6. Felix Bierbrauer, 2009. "Optimal Income Taxation and Public Goods Provision in a Large Economy with Aggregate Uncertainty," CESifo Working Paper Series 2701, CESifo.
    7. Felix J. Bierbrauer & Martin F. Hellwig, 2015. "Public-Good Provision in Large Economies," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2015_12, Max Planck Institute for Research on Collective Goods.
    8. Jin Xi & Haitian Xie, 2023. "Strength in numbers: robust mechanisms for public goods with many agents," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 61(3), pages 649-683, October.
    9. Felix Bierbrauer, 2016. "Effizienz oder Gerechtigkeit? Ungleiche Einkommen, ungleiche Vermögen und die Theorie der optimalen Besteuerung," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2016_03, Max Planck Institute for Research on Collective Goods.
    10. Felix Bierbrauer, 2012. "Distortionary taxation and the free-rider problem," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(5), pages 732-752, October.
    11. Martin Hellwig, 2015. "Financial Stability and Monetary Policy," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2015_10, Max Planck Institute for Research on Collective Goods.
    12. Ravi Radhakrishnan, 2022. "Public expenditure allocation, lobbying, and growth," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(4), pages 756-780, August.

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