The Efficient Provision Of Public Goods Through Non-Distortionary Tax Contests
Source: University of York
The authors use a simple balanced budget contest to collect taxes on a private good in order to finance a pure public good. They show that - with an appropriately chosen structure of winning probabilities - this contest can provide the public good efficiently and without distorting private consumption. They provide extensions to multiple public goods and private taxation sources, asymmetric preferences, and show the mechanism's robustness across these settings. The $240 billion worldwide lottery industry is a thriving business by any standard. Most governments regulate lottery activities to some extent and many participate in the generated revenues in some form or another.