Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/149575
Authors: 
Aronsson, Thomas
Schöb, Ronnie
Year of Publication: 
2017
Series/Report no.: 
Discussion Paper, School of Business & Economics: Economics 2017/1
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.
Subjects: 
public good provision
Samuelson condition
habit formation
optimal taxation
JEL: 
D60
H21
H41
Document Type: 
Working Paper

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