SFB 303 Discussion Paper No. A-407

Author: Nett, Lorenz, and Wolfgang Peters
Title: Financing Public Goods: Voluntary Contributions and Income Taxation
Abstract: The paper analyzes implications of taxation on voluntary contributions for public goods. We extend the analysis by allowing for distortionary taxation in the presence of endogenous labor supply. Scrutinizing the crowding-out effect of taxation on voluntary provision, the Pareto inferiority of the subscription equilibrium justifies public interventions. Thus, from the normative point a welfare optimal policy should be applied. The paper creates a link to the traditonal literature on optimal taxation. Especially, we compare characteristics of a welfare optimal tax policy in the presence of strategic interaction between all taxpayers to the case where perfect competition excludes voluntary provision of the public good.
Keywords:
JEL-Classification-Number: H21, H24, H41, C 72
Creation-Date: March 1993
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