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Consuming your way to efficiency: public goods provision through non-distortionary tax lotteries
TU Berlin, Germany.ORCID iD: 0000-0002-8973-1410
University of York, UK.
2014 (English)In: European Journal of Political Economy, ISSN 0176-2680, E-ISSN 1873-5703, Vol. 36, 1-12 p.Article in journal (Refereed) Published
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Abstract [en]

We revisit the classical result that taxation of private consumption is distortionary and therefore precludes the efficient provision of public goods. We introduce a nonlinear consumption tax which we call a ‘tax lottery’. Under this scheme, an ad-valorem consumption tax is supplemented with a lottery in which consumers can win cash prizes. The winning probabilities in this lottery depend on all consumers' private good consumption decisions. We show that for a given ad-valorem tax, an appropriately designed lottery can implement an efficient allocation in pure-strategy Nash equilibrium. The lottery component corrects the distortion in private consumption due to the ad-valorem tax, while the resulting tax revenue is sufficient to efficiently provide the public good and pay out the lottery prize.

Place, publisher, year, edition, pages
Elsevier, 2014. Vol. 36, 1-12 p.
Keyword [en]
Public goods, Contests, Taxation, Tax refunds
National Category
Economics
Research subject
Economy, Economics
Identifiers
URN: urn:nbn:se:lnu:diva-49432DOI: 10.1016/j.ejpoleco.2014.06.006OAI: oai:DiVA.org:lnu-49432DiVA: diva2:898843
Available from: 2016-01-29 Created: 2016-01-29 Last updated: 2016-02-05Bibliographically approved

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Giebe, Thomas
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CiteExportLink to record
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Cite
Citation style
  • apa
  • harvard1
  • ieee
  • modern-language-association-8th-edition
  • vancouver
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More styles
Language
  • de-DE
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  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
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Output format
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  • asciidoc
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