Public Finance, 4th Edition

Chapter 24: General Production Rules in a Second-Best Environment

1. The Diamond–Mirrlees Problem: One-Consumer Economy 
   1. The Private Sector 
   2. The Government Sector 
   3. Market Clearance 
   4. Loss Minimization 
   5. Optimal Taxation 
   6. Optimal Government Production 
2. Production Decisions With Nonoptimal Taxes 
   1. Tax Rules 
   2. Production Rules 
   3. Special Cases 
   4. Balanced-Budget Changes in t and Z 
3. Second-Best Production Rules When Equity Matters 
4. Concluding Comments 
5. References 

Chapter 24 concludes our survey of second-best public expenditure theory by exploring some fairly general propositions about government production in an environment made second best because of distorting taxation. A major goal of the chapter is to integrate ...