Habit formation and the Pareto-efficient provision of public goods

Author
Aronsson, Thomas · Schöb, Ronnie
Published 2017
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Abstract

This paper examines the implications of habit formation in private and public consumption for the Pareto-efficient provision of public goods, based on a two-period model with nonlinear taxation. If the public good supply is time-invariant, the presence of habit formation generally alters the standard rules for public good provision. In contrast, if the public good is a flow-variable such that the government directly decides on the level of the public good in each period, habit formation leads to a modification of the first best Samuelson condition only if the degrees of habituation differ for private and public consumption. Since habit formation affects the incentives to relax the self-selection constraint through public good provision, however, habituation alters the second-best analogue to the Samuelson condition also when the degrees of habituation in private and public consumption coincide.

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Details

Title
Habit formation and the Pareto-efficient provision of public goods
Author
Aronsson, Thomas · Schöb, Ronnie
Year
2017
Published
2017
Type
Research Paper
Language
eng
Keywords
Public Good Provision · Samuelson Condition · Habit Formation · Optimal Taxation · Welfare Economics · Efficiency · Public Goods
This is Version 1 of this record. We added this version on February 1, 2017. This version is based on an original data import from RePEc.