Pawns and Queens Revisited: Public Provision of Private Goods When Individuals Make Mistakes
نویسندگان
چکیده
This paper analyses the optimal tax policy and public provision of private goods when individuals di¤er in two respects: income-earning ability and rationality. Publicly provided goods should be overprovided or subsidised, relative to the decentralised optimum, if societys marginal valuation of them exceeds the individual valuation and if these goods help relax the self-selection constraints, formulated in a new way. Optimal marginal income tax rates are shown to di¤er from the standard rules if publicly provided goods and labour supply are related. Keywords: Behavioral economics, optimal taxation, public provision. JEL classi cation: H21, H42 Acknowledgements: We are grateful to Timo Seppälä, Matti Tuomala, and seminar participants at Uppsala University and FIEF for useful comments.
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