ON THE PUBLIC GOOD PROVISION RULE UNDER A NONLINEAR INCOME TAX

抄録

The optimal public good provision rule under optimal nonlinear income taxation is analyzed. In this case Pigou's conjecture-the level of a public good should be reduced than the first best level when it is financed by distortionary taxes-is justified under weak conditions. Using the decomposition method in Hatta, et. al. (1988), the following proposition is also shown. The optimal public good provision level should be lowered, if (a) the average marginal tax rate is high, (b) the marginal tax rate and the willingness to pay for the public good have a positive covariance, (c) the public good is more complementary with leisure and more of a luxury good than the commodity.