Support for Public Provision with Top-Up and Opt-Out: A Controlled Laboratory Experiment

We empirically test the predictions of political economy models regarding public support for a publicly provided private good financed with proportional income taxes when individuals can purchase the good privately and either continue to consume public provision ('top-up') or forego public provision ('opt-out'). Our laboratory results confirm the predicted majority-preferred tax rate in the mixed financing with top-up treatment, but find significantly higher rates than predicted in the mixed financing with opt-out treatment. Using non-parametric regression analysis, we also explore the relationship between individuals' top-up and opt-out decisions and both their income levels and the implemented tax rates.