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The public and private provision of pure public goods and the distortionary effects of income taxation: a political economy approach

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A pure public good is provided by the government and the voluntary contributions of two types of households. The government finances its contribution by means of income taxation. The latter has distortionary effects. A third type of household never makes contributions. We analyse the effects of changes in the income tax rate on (a) the provision of the public good, (b) the private contributions of the households, and (c) changes in the distribution of income and welfare between contributing and non-contributing households. We derive a simple and testable condition under which the lowering of the income tax entails a Pareto improvement.

Keywords: H23; H24; H41

Document Type: Research Article


Affiliations: 1: Graduate School of Economics and Business Administration, Hokkaido University 2: Department of Economics, University of Konstanz

Publication date: August 1, 2006

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