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The Democratic Decision On Fees Versus Taxes

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  • Dieter Bos

Abstract

Let consumers decide whether the public sector shall be extended by progressive taxation or by fees. A majority for the fee case will be found (a) if tax financed public supply deviates from the allocative optimum to a too high extent; especially in case of public oversupply; (b) if the preferences for the public supply and thus the sensitivity to allocational questions increase. This may lead to a dilemma for Social democratic parties that influence their voters in favour of increasing preferences for public supply and may loose the majority in favour of further redistributive policy; (c) if the voters believe that there is already too much redistribution. In such a case the majority is more sensitive with respect to further redistribution and with respect to deviations from the allocative optimum. (If on the other hand the present situation of the public sector is characterized by a too high deviation from the allocative optimum the majority is more sensitive with respect to further deviations from the allocative optimum only; not with respect to further redistribution! This is an interesting asymmetry between allocation and distribution as far as the extension of the public sector is concerned.)

Suggested Citation

  • Dieter Bos, 1980. "The Democratic Decision On Fees Versus Taxes," Kyklos, Wiley Blackwell, vol. 33(1), pages 76-99, February.
    • Handle: RePEc:bla:kyklos:v:33:y:1980:i:1:p:76-99
    DOI: 10.1111/j.1467-6435.1980.tb02622.x
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    Cited by:

    1. Kemnitz Alexander, 2013. "A Simple Model of Health Insurance Competition," German Economic Review, De Gruyter, vol. 14(4), pages 432-448, December.

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