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Cover of: Optimal Taxes and User Fees in a Growing Economy with Excludable and Nonexcludable Public Inputs
Chien-Yin Chen, Fu-Sheng Hung

Optimal Taxes and User Fees in a Growing Economy with Excludable and Nonexcludable Public Inputs

Section: Articles
Volume 69 (2013) / Issue 2, pp. 194-214 (21)
Published 09.07.2018
DOI 10.1628/001522113X666935
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  • 10.1628/001522113X666935
Summary
This paper examines optimal policies on taxation and user fees in a model where government spending is productive, rival, and congestive, and can be further classified as excludable and nonexcludable public inputs. We propose functions for the services of excludable and nonexcludable public inputs received by the individual firm that allow the individual firm to choose its usage of public inputs. Under this setting, the user fee will influence the individual's incentive in determining his usage of public inputs. We find that an increase in the degree of congestion, under the first- and second-best optima, should be associated with an increase in the user fee to induce the efficient usage of public inputs. This conclusion contradicts recent studies but accords well with economic intuitions.