Support for public provision of a private good with top-up and opt-out: A controlled laboratory experiment

Abstract

a b s t r a c tThis paper presents the results of a revealed-choice experiment testing the theoretical predictions of political economy models regarding public support for a publicly provided private good financed with proportional income taxes when individuals can purchase the good privately and either continue to consume public provision ('top-up') or forego public provision ('opt-out'), but in each case continue to pay income taxes. Our laboratory results confirm behavior is consistent with the predicted majority-preferred tax rate under mixed financing with top-up, but we identify preferences for significantly higher rates of public provision than predicted under mixed financing with opt-out. Using non parametric regression analysis, we explore the relationship between individuals' top-up and opt-out decisions and both their income levels and the implemented tax rates.

A Behavioral Economic Study of Tax Rate Selection by the Median Voter: Can the Tax Rate Be Influenced by the Name of the Publicly Provided Private Good?

“…We implement a standard political economy model of the public provision of a private good in a laboratory setting by adopting a discrete income distribution and a specific utility function (see [1] (3) and (1) we can solve for the individual's induced utility function with respect to the public provision of the private good…”

“…The publicly financed private good in [1] was presented in a neutral monetary investment context. The neutral context follows an established tradition in experimental economics.…”

“…This paper presents newly collected data expanding on the framework presented in [1] and [2] for which publicly financed private good provision is mandatory and is funded by a proportional tax on the income of the people who will receive the publicly provided private good. [2] are not examined here; the focus is on systems of mandatory public finance.…”

“…For 20 of the 40 groups the private good is presented as the result of an investment of resources into a group fund to finance, for each individual in the group, the opportunity to consume an equal amount of a private good that in turn will provide an equal return to each individual in the group. 1 For an additional 20 groups of five participants the publicly financed private good is presented in the same way but the private good that is available for consumption is labelled as a health care good.…”

“…We 1 The data for 10 groups in the environment using the private-good-only context were run to study the effect of top-up and opt-out treatments relative to public-only provision (see [1]). The data used are from the groups in which the public-only treatment was run before the top-up or opt-out treatments.…”