COWLES FOUNDATION FOR RESEARCH IN
ECONOMICS Box 208281
COWLES FOUNDATION DISCUSSION PAPER NO. 1830R Financing of Public Goods through Taxation Juergen Huber, Martin Shubik, and Shyam Sunder October 2011 We compare laboratory general equilibrium economies in which
maintenance of a depreciating public facility is financed either by anonymous voluntary
contributions or taxes. Agents individually allocate their private goods between
consumption and investment in production. The experimental economies sustain public goods
at 80-90 percent of the infinite horizon but 25-30 percent above the finite horizon
optimum. Payoff efficiency is around 90 percent. This contrasts with rapid decline of
public goods under voluntary contributions. When subjects have the choice between a system
with voluntary contributions or taxation, 23 out of 24 voting decisions favor taxation.
Taxation appears to be superior on grounds of both long run efficiency and fairness.
Economy is too complex for subjects to solve for optimally, but simple institutional
constraints yield aggregate efficiency. |
