Public Provision of Private Goods as a Redistributive Device in an Optimum Income Tax Model.

Public provision of a private good can alleviate the informational problems that restrict redistribution through the tax/transfer system when the identity of high- and low-skill persons is hidden. A Pareto improvement may be achieved by publicly providing a private good and letting each consumer choose between accepting the provision or buying the good on the market. The authors characterize goods that are suitable for public provision. Various kinds of social optima, conditional on the nature of preferences and the parameters of the economy, are distinguished and characterized. One or both types of persons may opt for public provision at the social optimum. Copyright 1995 by The editors of the Scandinavian Journal of Economics.