Relaxing the Second-Best Constraints
Relaxing the Second-Best Constraints
This chapter begins with a discussion of the use of policy instruments in addition to the nonlinear income tax that would not be used in a first-best world of lump-sum taxes and transfers. These include not only the strategic use of commodity taxes and public goods, but also the public provision of private goods and various forms of quantity or price controls. The chapter then considers ways of enhancing the information available to government, some of which the government now makes extensive use of, others it does not.
Keywords: tax policy, policy instruments, income tax, commodity taxes, public goods, private goods, price controls
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