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8.2: Provision With Taxation
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- If people won’t pay for public goods, can society tax them instead?
- Taxation—forced contribution—is a solution to the free-rider problem.
- An optimal tax rate is the average marginal value of the public good.
- Voting leads to a tax rate equal to the median marginal value, and hence does not generally lead to efficiency, although it outperforms voluntary contributions.
- Show for the model of this section that, under voluntary contributions, only one person contributes, and that person is the person with the largest vi. How much do they contribute? [Hint: Which individual i is willing to contribute at the largest park size? Given the park that this individual desires, can anyone else benefit from contributing at all?]
- Show that, if all individuals value the public good equally, voting on the size of the good results in the efficient provision of the public good.