Optimal level of demand and supply public goods in the general equilibrium model with Lindahl tax

Abstract

In the real world, there are commodities that although consumers are willing to pay for them, but they cannot obtain them by market. These goods are public goods that all people will benefit from their use, and about them so-called market fails. One of indicators for evaluation the performance of government is amount of production of public goods. In this regard, the optimal level of the production of public good that maximize households’ utility is very important. In this article, three sections are as follows; households, firms and government-monetary authorities, due to the limitations that each section is faced, each of them is looking to optimize its goals. The results of the optimization household utility function show the optimal level of public good demand that it is proportional to pay people as taxes. Also the results of production function of public good show the optimal level of supply of public goods and services. Compare the optimal amount of demand and supply of public good show that there is a huge gap between optimal levels.

Keywords

• public good
• general equilibrium
• lindahl tax
• optimization
• iran