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Applied Welfare Economics$
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Chris Jones

Print publication date: 2005

Print ISBN-13: 9780199281978

Published to Oxford Scholarship Online: July 2005

DOI: 10.1093/0199281971.001.0001

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The Optimal Provision of Public Goods

The Optimal Provision of Public Goods

Chapter:
(p.234) 10 The Optimal Provision of Public Goods
Source:
Applied Welfare Economics
Author(s):

Chris Jones (Contributor Webpage)

Publisher:
Oxford University Press
DOI:10.1093/0199281971.003.0010

Government provision of a pure public good is a popular application in public economics because it combines public spending and taxation in a single project. This chapter uses shadow pricing rules developed in previous chapters to obtain the Samuelson (1954) condition for the optimal provision of pure public goods. The effects of distorting taxation are included by using the revised shadow prices in Ch. 6 to obtain a revised Samuelson condition, and the distributional effects are included using welfare analysis in Ch. 7. The generalized Hatta decomposition is used to show why income effects do not impact on the Samuelson condition in a single (aggregated) consumer economy. Finally, Lindahl prices are obtained for government-provided public goods when prices and incomes change endogenously in a general equilibrium setting.

Keywords:   Lindahl prices, marginal social cost of public funds, modified MCF, public goods, revised Samuelson condition, Samuelson condition

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