Optimal Provision of Public Inputs in a Second Best Scenarioa Numerical Simulation

  1. Martínez López, Diego
  2. Sánchez Fuentes, Antonio Jesús
XII Encuentro de Economía Pública. Evaluación de las Políticas Públicas: Palma de Mallorca. Los días 3 y 4 de febrero de 2005

Publisher: [s.l: s.n.]

Year of publication: 2005

Pages: 54

Congress: Encuentro de Economía Pública (12. 2005. Palma de Mallorca)

Type: Conference paper


This paper studies the optimal provision of public inputs under two different tax settings: with lump-sum taxes and with taxes on labor. After obtaining optimal 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 the level of public input provided under a second best scenario is higher than that corresponding to a first best outcome, with a bigger social welfare too.