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User Charges as Redistributive Devices
Author(s) -
Balestrino Alessandro
Publication year - 1999
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/1097-3923.00024
Subject(s) - restructuring , economics , pareto principle , welfare , public economics , overlapping generations model , charge (physics) , social welfare , public good , microeconomics , market economy , finance , law , operations management , physics , quantum mechanics , political science
In this model, a mix of public and private provision of private goods arises naturally in the economy. We characterize the social optimum in the presence of a linear tax/public expenditure system and show how a user charge can be welfare‐ or Pareto‐improving, when the users are the poor. The charge discourages the rich from opting into the public program and allows the policymaker to restructure the tax/expenditure system in a way that is beneficial for the poor. If the ensuing welfare gain is large enough to outweigh the loss for the remaining users, a charge is desirable.