Improving Public Good Supply and Income Equality: Facing a Potential Trade-Off

This paper explores for a standard public good economy how redistribution of income changes public good supply in a Lindahl equilibrium, which is a prototype of an efficient public good allocation. In particular, it is shown how under certain premises on preferences a less equal income distribution may lead to a higher public good supply in the non-cooperative Nash equilibrium than in a cooperative outcome as given by the Lindahl equilibrium. Then a trade-off between an increase of public good supply on the one hand and income equality on the other occurs. The degree of inequality that is needed for producing this result does not need to be too extreme but may be rather moderate, which is shown by an example with CES preferences.