Distribution-neutral provision of public goods

The paper describes a normative approach to budget incidence, given the provision of a public good. The objective is to balance the budget by an income tax such that the budget is distribution-neutral. This property requires that every consumer’s net welfare gain, i.e. the benefit from consuming the public good and the tax burden in financing it, does not change the inequality inherent in the income distribution. The properties of the distribution-neutral tax are investigated and completely determined. The marginal willingness to pay for the public good is decisive for the degree of progression of the tax schedule. My co-author Georg Tillmann passed away in March 2006, much too soon. He was my friend, more than a colleague. I dedicate this paper to his memory.