Distributional equity and the pricing of public final and intermediate goods

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Abstract

This paper studies the implications of distributional concerns for the pricing of public final and intermediate goods under a general-equilibrium and general-private-production setting. It is shown that, in a many-household world, the pricing formula applying to the household is characterized by the distribution of goods while that applying to the private firm is characterized by the distribution of profits; moreover, both pricing formulae include a term incorporating the general equilibrium redistributive effects of public pricing. We compare our results with those in Baumol and Bradford (American Economic Review, 1970, 60, 265–283), Feldstein (American Economic Review, 1972, 62, 32–36; Journal of Public Economics, 1972, 1, 45–72) and Yang (Journal of Public Economics, 1991, 45, 135–141.)

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