Public provision of private goods, self-selection and income tax avoidance

Several contributions in the optimal taxation literature have emphasized that, when individuals' preferences are not separable between leisure and other goods, it is desirable to supplement a nonlinear income tax with the public provision of private goods. In this paper, using the self-selection approach to tax analysis, we revisit this result in the presence of tax avoidance and show how tax dodging opportunities limit the scope for using public provision of complementary-to-labor private goods as a redistributive device.