This paper concerns public provision of a private good in a two-type model with optimal nonlinear income taxation. We assume that the wage rates are determined by bargaining between unions and firms, meaning that the equilibrium is characterized by unemployment. We show that, if the labor market...

This paper analyzes optimal differential commodity taxation, together with optimal nonlinear income taxation, in order to deal with positional preferences. It also derives the optimal public provision of private goods both when differential commodity taxation is feasible and when it is not. It...