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Optimal Income Taxation and Public Good Provision with Endogenous Interest Groups
Author(s) -
BIERBRAUER FELIX
Publication year - 2009
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/j.1467-9779.2009.01412.x
Subject(s) - public good , economics , incentive , equity (law) , revenue , redistribution (election) , redistribution of income and wealth , microeconomics , public economics , incentive compatibility , free riding , labour economics , finance , politics , political science , law
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.