Optimal Provision of Public Inputs in a Second Best Scenario

  1. Martínez López, Diego
  2. Sánchez Fuentes, Antonio Jesús
XIII Encuentro de Economía Pública: Playadulce (Almería), Hotel Playadulce. 2 y 3 de febrero

Editorial: Servicio de Publicaciones ; Universidad de Almería

ISBN: 84-8240-795-3

Any de publicació: 2006

Pàgines: 83

Congrés: Encuentro de Economía Pública (13. 2006. Almeria)

Tipus: Aportació congrés


This paper studies the optimal provision of public inputs under two different tax settings: with lump-sum taxes and with taxes on labour. After obtaining the optimality rules for the provision of public inputs, a numerical simulation is carried out to compute the level of public spending in each scenario. We find that a second-best rule has to be followed when lump-sum taxes are not available, even though the labor taxes are set optimally. Another result we obtain is that the level of public input provided under the second best scenario is higher than that corresponding to the first best outcome. The effect of changes to some parameters on the level of public input is also studied.