Pawns and queens revisited: public provision of private goods when individuals make mistakes |
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Authors: | Jukka Pirttilä Sanna Tenhunen |
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Institution: | (1) Labour Institute for Economic Research, Helsinki, Finland;(2) Department of Economics and Accounting, University of Tampere, 33014 Tampere, Finland;(3) FDPE, Helsinki Center of Economic Research, Helsinki, Finland |
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Abstract: | This paper analyses the optimal tax policy and public provision of private goods when the government is paternalistic and
has a redistributive objective. When individuals only differ with respect to their income-earning abilities, the publicly-provided
goods should be overprovided, relative to the decentralised optimum, if society’s marginal valuation of them exceeds the individual
valuation and if these goods are complements to labour supply. However, when the individuals also differ in terms of their
valuation of the publicly-provided good, this simple conclusion does not hold. Optimal marginal income tax rates are shown
to differ from the standard rules if publicly-provided goods and labour supply are related.
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Keywords: | Behavioural economics Optimal taxation Public provision |
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