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In this paper we examine the desirability of subsidizing child care expenditures in a model where parents can choose both the quantity and the quality of child care services they purchase in the market. Our vehicle of analysis is a Mirrleesian optimal tax framework where child care services not only enable parents to work, but also contribute to children’s formation of human capital. In addition, there are externalities related to the parents’ choice of child care arrangements for their offspring. Using a quantitative simulation model calibrated to the US economy, we evaluate the relative merits of some the most common forms of child care subsidies (tax deductions, tax credits, and opting-out public provision schemes) in terms of their effectiveness in alleviating the distortions associated with income taxation and increasing the quality of child care chosen by parents.

This paper suggests that human capital externalities are important in determining whether goods and services should be privately or publicly provided. We study situations where that the cost incurred by an individual provider for providing quality is affected by the human capital of her colleagues. This is the case for goods such as health, education, legal services, police protection, and so on. The mode of provision (private or public) affects a supplier’s incentive to acquire human capital and therefore her colleagues’ cost of provision. The paper shows that either mode of provision may be preferable, depending on the nature of the human capital externality: private provision of the final goods and services provides stronger incentives to human capital acquisition (and may therefore be socially preferable) if own human capital and one’s colleagues’ human capital are substitutes, and suppliers with high human capital benefit more benefit more than suppliers with low human capital from their colleagues’ human capital, but not excessively so.

This paper characterizes the optimal tax and expenditure policies in economies where households’ unobservable gross earnings depend on exogenous (or inherited) capabilities and input investments. In a two-class economy, optimal redistribution relies on non-linear income taxation and input public provision only if the poor households demand less input than the rich. In a multi-class economy, optimal redistribution is implemented by usual-shape, non-linear income taxation and uniform public provision of input, if inherited capability and input are economic substitutes. But, when capability and input are complements, optimal redistribution relies only on non-linear income taxation. Numerical analyses show that, when individual productivity is separable in input and capability, these factors are economic substitutes (or complements) if preferences take into account (or not) the income effects.

This paper analyzes optimal differential commodity taxation, together with optimal nonlinear income taxation, in order to deal with positional preferences. It also derives the optimal public provision of private goods both when differential commodity taxation is feasible and when it is not. It is shown that publicly provided non-positional private goods which are (possibly imperfect) substitutes for positional private goods should be used as a corrective instrument even if the tax system is optimal, i.e. even when differential commodity taxation is feasible. An exception is the special case where all consumers contribute equally much to the positional externality, in which the commodity tax constitutes a perfect instrument for internalizing the positional externality.

This paper analyzes the welfare effects of a publicly provided private good with long-term consequences for individual well-being, in an economy where consumers have present-biased preferences due to quasihyperbolic discounting. The analysis is based on a two-type model with asymmetric information between the government and the private sector, and each consumer fives for three periods. We present formal conditions under which public provision to the young and the middle-aged generation, respectively, leads to higher welfare. Our results show that quasihyperbolic discounting provides a strong incentive for public provision to the young generation - especially if the consumers are naive (as opposed to sophisticated).

We investigate whether people enrolled into voluntary health insurance (VHI) substitute public consumption with private (opt out) or just enlarge their private consumption, without reducing reliance upon public provisions (top up). We study the case of Italy, where a mixed insurance system is in place. To this purpose, we specify a joint model for public and private specialist visits counts, and allow for different degrees of endogenous supplementary insurance coverage, looking at the insurance coverage as driven by a trinomial choice process. We disentangle the effect of income and wealth by going through two channels: the direct impact on the demand for healthcare and that due to selection into VHI. We find evidence of opting out: richer and wealthier individuals consume more private services and concomitantly reduce those services publicly provided through selection into for-profit VHI. These results imply that the market for VHI eases the redistribution from high income (doubly insured) individuals to low income (not doubly insured) ones operated by the Italian National Health Service (NHS). Accounting for VHI endogeneity in the joint model of the two counts is crucial to this conclusion.

Several contributions in the optimal taxation literature have emphasized that, when individuals. preferences are not separable between leisure and other goods, it is desirable to supplement a nonlinear income tax with public provision of private goods. Moreover, it has also been shown that the choice between a topping-up and an opting-out scheme depends on whether the publicly provided good is a complement or substitute with leisure, with opting-out (topping-up) being the preferred scheme for goods which are substitutes (complements) for labor. In this paper, using the self-selection approach to tax analysis, we revisit these results in the presence of tax avoidance, and investigate how public provision interacts withthe agents.incentives to engage in tax avoidance. Three results are obtained. First, we show that tax dodging opportunities imply that non-separability between labor and other goods is neither a necessary nor a sufficient condition to make public provision of private goods a welfare-enhancing policy instrument. Second, we show how tax dodging opportunities limit the scope for using topping-up provision schemes as a redistributive device. Finally, we show that, for most of the public provision schemes previously analyzed in the literature, being a welfare-enhancing policy instrument goes hand in hand with weakening the agents.incentives to shelter income from the tax authority. However, we also point out an important exceptionto this pattern.

In this paper, we analyze the welfare effects of publicly provided health care in an economy where the consumers have "present-biased" preferences due to quasi-hyperbolic discounting. The analysis is based on a two-type model with asymmetric information between the government and the private sector, and each consumer lives for three periods. We present formal conditions under which public provision to the young and middle-aged generation, respectively, leads to higher welfare. Our results show that quasi-hyperbolic discounting provides a strong incentive for public provision to the young generation; especially if the consumers are naive (instead of sophisticated).

The incidence and efficiency losses of taxes have usually been analysed in isolation from public expenditures. This negligence of the expenditure side may imply a serious misperception of the effects of marginal tax rates. The reason is that part of the marginal tax may in fact be payment for publicly provided goods and reflects a cost that the consumers should bear in order to face the proper incentives. Hence, part of the marginal tax serves the same role as a market price in the sense that it conveys information about a real social cost of working more hours. We develop this idea formally by studying an optimal income tax model in combination with a type of public provision scheme not analyzed before; the provision level is individualized and positively associated with the individual’s labor supply. As examples we discuss child care, elderly care, primary education and health care. We show that there is a gain in efficiency where public provision of such a service replaces market purchases. We also show that it is necessary for efficiency that marginal income tax rates are higher than in economies where the services are purchased in the market. This is because the optimal tax should be designed so as to face the taxpayers with the real cost of providing the services. Hence, it might very well be that economies with higher marginal tax rates have less severe distortions than economies with lower marginal tax rates.

Atkinson and Stiglitz (Journal of Public Economics 1976) show that when the government has access to non-linear income taxation and consumer preferences are separable between consumption and leisure, there is no need for differentiated commodity taxation. This paper examines the empirical validity of this claim using consumption data from Finland. The data have extensive information on commodity demand, the use of public services and hours of work. When labour income is controlled for in a semi-parametric way, we find that capital income and housing expenses are negatively associated with hours of work, whereas the use of child care is somewhat positively correlated with labour supply. These results suggest that capital income and housing should be taxed whereas day care could perhaps be subsidised.

The incidence and efficiency losses of taxes have usually been analyzed in isolation from public expenditures. This negligence of the expenditure side may imply a serious misperception of the effects of marginal tax rates. The reason is that part of the marginal tax may in fact be a payment for publicly provided goods and reflects a cost that the consumers should bear in order to face the proper incentives. Hence, part of the marginal tax may serve the same role as a market price in the sense that it conveys information about a real social cost of working more hours. We develop this idea formally by studying an optimal income tax model in combination with a type of public provision scheme not analyzed before; the provision level is individualized and positively associated with the individual's labor supply. As examples we discuss child care, elderly care, primary education and health care. We show that there is a potential gain in efficiency where public provision of such services replaces market purchases. We also show that it is necessary for efficiency that, other things equal, marginal income tax rates are higher than in economies where the services are purchased in the market. This is because the optimal tax should be designed so as to face the taxpayers with the real cost of providing the services. Hence, it might very well be that economies with higher marginal tax rates have less severe distortions than economies with lower marginal tax rates.

The incidence and efficiency losses of taxes have usually been analyzed in isolation from public expenditures. This negligence of the expenditure side may imply a serious misperception of the effects of marginal tax rates. The reason is that part of the marginal tax may in fact be a payment for publicly provided goods and reflects a cost that the consumers should bear in order to face the proper incentives. Hence, part of the marginal tax may serve the same role as a market price in the sense that it conveys information about a real social cost of working more hours. We develop this idea formally by studying an optimal income tax model in combination with a type of public provision scheme not analyzed before; the provision level is individualized and positively associated with the individual’s labor supply. As examples we discuss child care, elderly care, primary education and health care. We show that there is a potential gain in efficiency where public provision of such services replaces market purchases. We also show that it is necessary for efficiency that, other things equal, marginal income tax rates are higher than in economies where the services are purchased in the market. This because the optimal tax should be designed so as to face the taxpayers with the real cost of providing the services. Hence, it might very well be that economies with higher marginal tax rates have less severe distortions than economies with lower marginal tax rates.

We analyse preferences for public, private or mixed provision of childcare theoretically and empirically. We model childcare as a publicly provided private good. Richer households should prefer private provision to either pure public or mixed provision. If public provision redistributes from rich to poor, the rich should favour mixed over pure public provision, but if public provision redistributes from poor to rich, the rich and poor might favour mixed provision while the middle class favour public provision ('ends against the middle'). Using estimates for household preferences from survey data, we find no support for the ends-against-the-middle result.

The incidence and efficiency losses of taxes have usually been analysed in isolation from public expenditures. This negligence of the expenditure side may imply a serious misperception of the effects of marginal tax rates. The reason is that part of the marginal tax may in fact be payment for publicly provided goods and reflects a cost that the consumers should bear in order to face the proper incentives. Hence, part of the marginal tax serves the same role as a market price in the sense that it conveys information about a real social cost of working more hours. We develop this idea formally by studying an optimal income tax model in combination with a type of public provision scheme not analyzed before; the provision level is individualized and positively associated with the individual's labor supply. As examples we discuss child care, elderly care, primary education and health care. We show that there is a gain in efficiency where public provision of such a service replaces market purchases. We also show that it is necessary for efficiency that marginal income tax rates are higher than in economies where the services are purchased in the market. This is because the optimal tax should be designed so as to face the taxpayers with the real cost of providing the services. Hence, it might very well be that economies with higher marginal tax rates have less severe distortions than economies with lower marginal tax rates.

This paper uses household data from India to examine the economic and social status of village politicians, and how individual and village characteristics affect politician behaviour while in office. Education increases the chances of selection to public office and reduces the odds that a politician uses political power opportunistically. In contrast, land ownership and political connections enable selection but do not affect politician opportunism. At the village level, changes in the identity of the politically dominant group alter the group allocation of resources but not politician opportunism. Improved information flows in the village, however, reduce opportunism and improve resource allocation.

This paper uses household data from India to examine the economic and social status of village politicians, and how individual and village characteristics affect politician behavior while in office. Education increases the chances of selection to public office and reduces the odds that a politician uses political power opportunistically. In contrast, land ownership and political connections enable selection but do not affect politician opportunism. At the village level, changes in the identity of the politically dominant group alters the group allocation of resources but not politician opportunism. Improved information flows in the village, however, reduce opportunism and improve resource allocation.

This paper concerns public provision of a private good in a two-type model with optimal nonlinear income taxation. We assume that the wage rates are determined by bargaining between unions and firms, meaning that the equilibrium is characterized by unemployment. We show that, if the labor market is imperfectly competitive, additional mechanisms arise via the self-selection constraint, which may justify either more or less public provision of the private good than under perfect competition. Furthermore, public provision of private goods becomes a tool to influence the employment.

This thesis deals with politico-economic aspects of municipality break-ups. It consists of an introduction and three self-contained papers. Paper I: The Break-up of Municipalities – Voting Behavior in Local Referenda This paper examines the economic and political conditions that influence people's attitudes regarding a municipality break-up. The theoretical model predicts intra-municipal differences in tax bases, political preferences, and population size to affect the expected gain from secession. The predictions of the model are tested using data on local referenda about municipality partitioning in Sweden. The data support one of the three effects; a tax base effect shows to be present – voters in municipality parts that are wealthy compared to other parts of the same municipality are more positive to secession. Paper II: Unequal Provision of Local Public Services under the Threat of Secession This paper studies to what extent it is possible to discriminate between two municipality parts by unequal public service provision when there is a threat of secession. The objective of the local politicians is to maximize utility for only one part of a municipality. The discriminated part is small and politically marginalized, but has the option to secede. The power of the small part's population is in this way entirely exercised through the threat of secession. It becomes their guarantee against being taxed too heavily or against obtaining too little of public services. The case of three recent secession attempts in Göteborg, Sweden, is discussed in light of the model. Paper III: Deciding Who's Decisive: Municipality Break-Ups and the Behavior of Local Politicians Swedish municipality parts aiming for secession are highly dependent on the municipal council's acceptance in order to succeed. Only four of the 25 municipality break-up verdicts passed by the central government have not been in line with the municipal council's recommendation. In nearly all cases, the recommendation seems to be based on the stated opinion in local referenda or opinion polls. However, by deciding on whether the whole municipality, or the seceding part alone should be encompassed by the referendum or opinion poll, the municipal council can affect the probability of obtaining the desired result. This paper empirically studies this decision. Two factors show to be important. If a secession would result in a large reduction of the municipality's population and a decrease in its per capita tax base, the referendum or opinion poll is more likely to encompass the whole municipality. Such a referendum or opinion poll does, in turn, decrease the probability of a municipal council supporting the case, which reduces the central government's propensity to finally approve a secession.

Given heterogeneity in incomes and health risks, with asymmetric information in the latter, preferences over the public-private mix in health insurance and care are derived. Results concerning crowding-out in the presence of adverse selection are established. For low-risk individuals, crowding-out depends on risk aversion. A set of such individuals prefers a mixed public-private health care system. A majority-voting equilibrium exists. Under weak assumptions about the income distribution and tax function, both public and private sectors exist in the equilibrium. Comparing information regimes, public provision is more likely to be positive, and will not be lower, under asymmetric information. In the presence of asymmetric information, the equilibrium is more complicated than the "ends-against-the-middle" variety derived elsewhere in the literature.

The aim of this paper is to investigate the implications of increased student mobility on the level of education provided after opening the borders between two similar countries. As a preliminary result, it will be shown that some public provision of mandatory education can be welfare improving when an optimal linear income tax exists. Compared to the autarchic optimal provision level, mandatory education will be underprovided in both countries at the symmetrical Nash equilibrium.