Nonlinear Pricing, Redistribution, and Optimal Tax Policy
AbstractThis paper examines the role of nonlinear pricing by public (or regulated) utilities as a redistributive mechanism in presence of an optimal nonlinear income tax. It models an economy with many types of persons who differ in two unobservable characteristics (earning abilities and tastes). We show that nonlinear pricing does have a redistributive role; it is not a substitute for an ill-designed tax policy. We prove, assuming separable preferences, that a person whose valuation of the public sector output is smaller than the average valuation of the population (all measured at the same consumption bundle) must face a marginal price for the good above its marginal cost. Further assuming that tastes and earning abilities are perfectly correlated, we prove that everyone must face a marginal price for the public sector's output which strictly exceeds its marginal cost if correlation is positive. These properties provide an economic rationale for the provision of "support for low-income consumers" as mandated by the universal service and similar regulatory policies. Finally, we show that with correlated characteristics, implementation can be achieved through two separate functions: a pricing function that depends only on the public sector output and a tax function that depends only on income. Copyright 2002 by Blackwell Publishing Inc.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.
Volume (Year): 4 (2002)
Issue (Month): 2 ()
Contact details of provider:
Web page: http://www.blackwellpublishing.com/journal.asp?ref=1097-3923
More information through EDIRC
Other versions of this item:
- Cremer, H. & Gahvari, F., 1996. "Nonlinear Pricing, Redistribution and Optimal Tax Policy," Papers 95.393, Toulouse - GREMAQ.
- H40 - Public Economics - - Publicly Provided Goods - - - General
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
- H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
- H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Russo, Antonio, 2012. "Pricing of Transport Networks, Redistribution and Optimal Taxation," TSE Working Papers 12-353, Toulouse School of Economics (TSE).
- Gui, Benedetto & de Villemeur, Étienne, 2007. "Regulation of a Monopoly Generating Externalities," IDEI Working Papers 469, Institut d'Économie Industrielle (IDEI), Toulouse, revised Jan 2011.
- Cremer, Helmuth & Gahvari, Firouz, 2013.
"Atkinson-Stiglitz and Ramsey reconciled: Pareto efficient taxation and pricing under a break-even constraint,"
IDEI Working Papers
780, Institut d'Économie Industrielle (IDEI), Toulouse.
- Cremer, Helmuth & Gahvari, Firouz, 2013. "Atkinson-Stiglitz and Ramsey reconciled: Pareto efficient taxation and pricing under a break-even constraint," TSE Working Papers 13-408, Toulouse School of Economics (TSE).
- Helmuth Cremer & Firouz Gahvari, 2013. "Atkinson-Stiglitz and Ramsey Reconciled: Pareto Efficient Taxation and Pricing under a Break-Even Constraint," CESifo Working Paper Series 4248, CESifo Group Munich.
- Janet Currie & Firouz Gahvari, 2007.
"Transfers in Cash and In Kind: Theory Meets the Data,"
NBER Working Papers
13557, National Bureau of Economic Research, Inc.
- Janet Currie & Firouz Gahvari, 2008. "Transfers in Cash and In-Kind: Theory Meets the Data," Journal of Economic Literature, American Economic Association, vol. 46(2), pages 333-83, June.
- Andersson, Tommy, 2005. "Nonlinear Pricing and the Utility Possibility Set," Working Papers 2005:19, Lund University, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.