This paper examines optimal policies on taxation and user fees in a model where government spending is productive, rival, and congestive, and can be further classified as excludable and nonexcludable public inputs. We propose functions for the services of excludable and nonexcludable public...

By separating monopolistic competition from increasing returns to fully disentangle their corresponding effects, this paper find that optimal tax rates on factor incomes are decreasing in the degree of increasing returns, but are independent of the degree of market power. Moreover, free entry...