Public Good Provision by Bargaining

This paper studies how the level of the public good and the amounts of taxes are determined in a bargaining model. Using the Nash bargaining solution as the solution concept, the paper shows that the nature of individuals’ preferences over the public good and private good determines the nature of the tax regime. In particular, the paper characterizes conditions on preferences under which the Nash bargaining allocation exhibits consumption equalization, tax equalization, and proportional taxation. We also present some results on the separation of communities and neutrality of redistribution. (JEL H41, H21, C78).