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plans force the arts to make their output more of a non-rival, non-excludable good and less of a luxury
good, so there may be a case for government subsidy.
Third, there often is a case for stimulating demand rather than supply of cultural goods. For
example, the Netherlands has shifted from income support for artists to interest subsidies for buyers of
contemporary visual art. Artistic Programming Funds may encourage provincial venues to program more
adventurous avant-garde culture. It takes time to cultivate an audience. Also, it is worthwhile to have a
longer run for successful productions. Giving a `bums on seats' premium to the performing arts gives
better incentives for drawing bigger audiences and generating income from the market.
Fourth, non-rival and/or non-excludable cultural goods are public goods. The market fails to
deliver the socially optimal level of these cultural public goods. Hence, government should step in to
ensure that these cultural goods are delivered through the use of subsidies, tax incentives, regulation or
public sector provision. Samuelson's well known principle of optimal provision corresponds to setting the
sum of the marginal benefits of the cultural goods across the population equal to the marginal cost. A
related argument is that cultural goods generate social cultural capital and positive externalities, so they
benefit society at large and not only the few who consume them. Hence, the government needs to
subsidise these cultural goods according to the rule of Atkinson and Stern (1974):
sum of marginal benefits of culture to all people in society equals
relative price of cultural goods times
marginal cost of public funds minus
effects of cultural goods on the tax base.
The well-known Samuelson rule states that the sum of the marginal benefits of cultural goods converted
into resource units must equal the relative price of cultural goods. This is modified in two ways. On the
one hand, the cost of these public goods is raised as they have to be financed by distortionary taxes. This
extra cost is particularly high if the wage elasticity of labour supply is high and pre-existing tax
distortions (e.g., the tax rate on labour) are high. On the other hand, making cultural goods more widely
available may make people enjoy them more and work less hard and pay fewer taxes. This erosion of the
tax base raises the cost of public goods. More likely is that more cultural goods attracts more high-skilled
workers, businesses and tourists and thus raises tax revenues. Obviously, this lowers the marginal cost of
public goods. In sum, the demand for public cultural goods relative to private goods is large if the costs
of cultural goods is low (e.g., due to supply subsidies or tax facilities), the marginal cost of public funds
is low (i.e., if labour supply is inelastic and the tax rate on labour is low), and cultural goods have a
positive impact on economic activity.