This paper studies the optimal level of public inputs under two different tax settings. With this aim, we adapt the approach by Gronberg and Liu (2001) to the case of productivity-enhancing public spending. We find that it is not analytically clear whether the first-best level of public spending...

Specialized theoretical and empirical research should in principle be embedded in a unified framework that identifies the relevant interactions among different phenomena, enables an appropriate matching of policy instruments to objectives, and grounds normative analysis in individuals' utilities...

In this note we discuss how to treat taxes in a cost-benefit analysis (CBA). In particular we relate the shadow price of taxes in CBA to the concepts the marginal cost of public funds MCPF) and the marginal excess burden (MEB) of taxes. In particular we demonstrate that the MCPF is equal to one...

Various economic literatures address the question whether first-best prescriptions for government policy require modification because redistributive income taxation distorts labor supply and cannot achieve the distributive ideal. Perhaps second-best rules for public goods provision, corrective...

This paper studies the sensitivity of provision of public inputs to changes in the specification of technology and consumer preferences. We consider a simple model in which the government, with recourse to three different tax settings (a lump-sum tax, a tax on labour and a tax on economic...

As a response to a changing labour market scenario and to the concerns for increasing costs and bad incentives of traditional income support policies, the last decades have witnessed, in many countries, reforms introducing more sophisticated designs of means-testing, eligibility and tagging. In...

We characterize optimal income taxation and unemployment insurance in a search-matching framework where both voluntary and involuntary unemployment are endogenous and Nash bargaining determines wages. Individuals differ in utility when voluntarily unemployed (non-participants in the labour...

The marginal cost of public funds defined as the ratio between the shadow price of tax revenues and the population average of the social marginal utility of income, is analysed within an explicit cost–benefit context. It is shown that for an optimal tax system the measure is always equal to...

Optimal policy rules - including those regarding income taxation, commodity taxation, public goods, and externalities - are typically derived in models with homogeneous preferences. This article reconsiders many central results for the case in which preferences for commodities, public goods, and...