Publicly Provided Private Goods and Redistribution: A General Equilibrium Analysis

Abstract

This paper focuses on two sets of impacts of public provision of private goods that have been neglected in the self-selection framework of optimal taxation, the by-now standard approach in examining public provision. We first show, using a general formulation whereby production depends on labour supply of different households and the level of public provision, that there can be a role for public provision because of productivity and wage-structure effects, even if preferences are weakly separable between goods and leisure. Second, we deal with a specific example of public provision of education that provides an intuitively appealing case for the production side impacts. Finally, we address the role of public provision in a dynamic, overlapping generations, economy, whereby public provision may affect efficiency and social costs of redistribution of future generations as well, opening up a way to combine inter- and intra-generational impacts of public provision.