Financing Public Goods with Income Taxation: Provision Rules vs. Provision Level

Author: Gaube, Thomas

Source: International Tax and Public Finance, Volume 12, Number 3, May 2005 , pp. 319-334(16)

Publisher: Springer

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Abstract:

Due to the use of distortionary taxation, many believe that real-world economies should attain a lower level of public expenditures than in a situation where lump-sum taxes are available. The present paper examines this hypothesis by means of the two-type self-selection model of income taxation. Based on the findings of Boadway and Keen (1993), I provide sufficient conditions for both a lower and a higher level of public expenditures in second best than in first best. In particular, it is shown that the separability assumption of Christiansen (1981) leads to under-provision of the public good in the income tax optimum.

Keywords: income taxation; public goods

Document Type: Research article

DOI: http://dx.doi.org/10.1007/s10797-005-0500-1

Affiliations: 1: Max Planck Institute for Research on Collective Goods, Kurt-Schumacher-Str. 10, D-53113, Bonn, Germany, Email: gaube@mpp-rdg.mpg.de

Publication date: 2005-05-01