SUBSIDIES VERSUS PUBLIC PROVISION OF PRIVATE GOODS AS INSTRUMENTS FORREDISTRIBUTION

The literatures on differential commodity taxes and on quantity contro ls to supplement income taxation have developed separately. This paper combines these two strands in the standard framework of optimal non-l inear income taxation. We use a model with two types of households whe re the government has access to both subsidy policy and public provisi on of a good substitutable for leisure, and households can supplement the publicity provided good from the market. We present conditions und er which policy should involve one or both of these two instruments al ongside income taxation. The model is extended to many ability types.