ON THE POSSIBILITY OF EFFICIENT PRIVATE PROVISION OF PUBLIC-GOODS THROUGH GOVERNMENT SUBSIDIES

This paper investigates the possibility of implementing an efficient p rovision of a public good through distortionary tax-subsidy policies i n a simple one-shot game of voluntary contributions, Within the class of all linear tax-subsidy policies two cases are distinguished. The fi rst is where individual taxes only depend on the sum of all other indi viduals' contributions. Although such policies may increase total supp ly of the public good, it is shown that the implementation of an effic ient amount is not possible unless the government has complete informa tion about individual characteristics. In the second case, where taxes depend on the distribution of contributions, the equilibrium supply o f the public good is no longer unique. For any efficient interior solu tion there might also exist inefficient boundary solutions. Moreover, unlike the boundary solutions, the efficient interior solution is in g eneral not stable. (C) 1997 Elsevier Science S.A.