Public Versus Private Provision of Public Goods

Authors


  • Sita Nataraj Slavov, American Enterprise Institute, 1150 Seventeenth Street NW, Washington, DC 20036 (sita.slavov@aei.org).

  •  I would like to thank Doug Bernheim, Katie Carman, Amalia Miller, Antonio Rangel, John Shoven, Steve Tadelis, and Lei Zhang; seminar participants at George Mason University, the College of William and Mary, the University of Virginia, and Occidental College; and two anonymous referees for helpful comments. This material is partly based on work supported under a National Science Foundation Graduate Research Fellowship. Any opinions, findings, conclusions or recommendations expressed in this publication are those of the author and do not necessarily reflect the views of the National Science Foundation.

Abstract

It is well known that public goods are underprovided in a static setting with voluntary contributions. Public provision—in a median voter framework with proportional taxation—generally exceeds private provision. This paper compares private and public provision of public goods in a dynamic setting. In a dynamic setting, voluntary donations can result in efficient provision. Also, majority-rule solutions exist even when taxes are not proportional to income. At low discount factors, public provision tends to exceed private provision. As patience increases, however, private provision may exceed public provision. This occurs because many outcomes with a low level of public good provision—and potentially large targeted transfer payments to particular individuals—become sustainable under public provision. Under private provision, however, large targeted transfers are unsustainable. To finance the public good, private provision tends to result in benefit taxation, and public provision tends to result in progressive taxation.

Ancillary