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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, p. 1-12Article 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, p. 1-12
Keywords [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, id: diva2:898843
Available from: 2016-01-29 Created: 2016-01-29 Last updated: 2017-11-30Bibliographically approved

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Giebe, Thomas

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  • apa
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  • Other locale
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  • asciidoc
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