ABSTRACT
Public finance measures to achieve a Pareto-optimum pattern of output fall into four groups. First, the government supplies free of charge group-consumption goods, some of which are consumed collectively, some not, and raises the tax revenue or other moneys to finance these services. Second, when a group-consumption good arises as a jointly produced externality with production or consumption of a marketable good, subsidies or tax devices may perhaps be designed that will increase the private-sector output of those marketable goods and their accompanying group-consumption externalities. Third, a privately marketable good yielding no externalities may nevertheless be subsidized, or taxed, or be supplied directly by the government, below or above cost, on Pareto-optimum grounds, if the good is one that is consumed collectively. Fourth, subsidies or subsidy-tax devices may be used to induce greater private-sector output of goods produced under imperfect competition or in industries of decreasing cost.
