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The importance of considering optimal government policy when social norms matter for the private provision of public goods
Author(s) -
Meunier Guy,
Schumacher Ingmar
Publication year - 2020
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/jpet.12418
Subject(s) - externality , public good , economics , crowding out , argument (complex analysis) , microeconomics , norm (philosophy) , public economics , social welfare , government (linguistics) , welfare , public policy , private good , path dependence , macroeconomics , political science , law , market economy , biochemistry , chemistry , linguistics , philosophy , economic growth
We study optimal government policy in a reference model (Rege, 2004, Journal of Public Economic Theory , 6 , 65–77) of public good provision and social approval in a dynamic setting. We show that even if complete adherence to the social norm maximizes social welfare it is by no means necessarily optimal to push society toward it. We stress the different roles of social externality and the public good problem. We discuss the problem with the standard crowding in and out argument and analyze the relationship with Pigouvian taxes. We discuss the role of the cost of public funds and show how it can create path dependency, the multiplicity of both optimal equilibria and optimal paths, and discuss the role of parameter instability.