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INTRODUCTION The overall aim of the present paper is to discuss the role of tax regimes and the optimality of tax policy for the assessment of public projects, and to [...], The paper argues that the appropriate approach to determine public good provision financed by distortionary taxes should depend on the available tax regime. Ira sufficiently rich tax regime exists, one could rely on the Pareto criterion, which would be less information-demanding than a social welfare approach requiring access to social welfare weights assigned to various groups. The discussion is related to a number of representative tax regimes and cost-benefit approaches in the literature. It is also argued that, whatever the available tax regime, cost-benefit analysis runs into problems unless one can assume that taxes are set optimally.

Byline: Soren Blomquist (1), Vidar Christiansen (2) Keywords: price subsidy; public provision; private goods; in-kind transfers; optimal taxation Abstract: The paper investigates whether price subsidization or public provision of a private good, x, is the more efficient redistributional instrument in addition to an optimal nonlinear income tax. The identity of high and low skill individuals is assumed to be private information generating a self-selection constraint. If the high skill person's consumption of x is sufficiently large relative to that of the low skill person, public provision is the better scheme. With the opposite situation the price subsidy may be the preferred instrument. The paper also characterizes the mixed scheme where all the instruments are used optimally. The mixed scheme can be degenerate with only public provision being used in addition to the income tax. At an optimum where both instruments are used, good x is subsidized, the low skill person is supplementing and the high skill person is forced to overconsume. Author Affiliation: (1) Department of Economics, Uppsala University, Sweden (2) Department of Economics, University of Oslo, Norway Article History: Registration Date: 30/09/2004

There is extensive public provision of private goods in all developed countries. The public provision scheme is often designed so that individuals can opt out, but not top up (supplement) the publicly provided quantity/quality. Using an optimal income tax/public provision model we derive the respective conditions under which a public provision scheme should allow or forbid supplementing. Disregarding administrative costs, a system where individuals are not allowed to top up is optimal if the demand for the publicly provided good increases in the amount of leisure available, while a scheme allowing individuals to top up is warranted if the demand decreases with the amount of leisure.

The paper analyses state-contingent taxation of the return to foreign investment in a country. It is assumed that the investment will be undertaken only if the investor obtains a given expected utility from the project. The optimal tax schedule across income levels in different states is characterized in cases where private domestic income is exogenous and in the case of endogenous domestic taxation. In the latter case the striking results are obtained that the total tax revenue should always increase when total income increases, and it makes no difference for the rate of increase whether it is domestic or foreign income that increases.

1. Introduction Most contributions to the literature on capital income taxation and risk-taking have been positive analyses of the effects of taxes on portfolio and savings decisions. The pioneering article [...]

Two different mechanisms to the analysis of the public provision of private goods such as education health care and day care were combined. The first step was the construction of a political economic framework that establishes a case for a choice of efficient policy. The next step was the construction of a positive theory of public provision of private goods where the tax instruments were allowed to be as flexible as possible. The robustness of the combined systems can be determined only by taking a wider range of political economy models with different assumptions into account.