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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
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