A Pigovian Rule For The Optimum Provision Of Public Goods

Journal of Public Economics A PIGOVIAN 30 (1986) 273-291. RULE FOR THE OPTIMUM PUBLIC GOODS Mervyn Department North-Holland PROVISION OF A. KING* of Economics, London School of Economics, London WCZA ZAE, UK Received June 1985, revised version received April 1986 The integrated treatment of optimal taxation and public expenditure presented here is based on the dual relationship between the prices of private goods and the quantities of public goods. The conditions for optimum public good provision can be expressed as a modification of the Samuelson conditions with extra terms representing (a) the distortionary effect of taxes on the willingness to pay for the public good, and (b) distributional effects. The former captures Pigou’s notion of the indirect damage caused by the need to finance public expenditure out of distortionary taxes. and we call this the ‘Pigou term’. In certain cases a very simple bene!it