Optimum commodity taxation in pooling equilibria
AbstractThis paper extends the standard model of optimum commodity taxation (Ramsey (1927) and Diamond-Mirrlees (1971)) to a competitive economy in which some markets are inefficient due to asymmetric information. As in most insurance markets, consumers impose varying costs on suppliers but firms cannot associate costs to customers and consequently all are charged equal prices. In a competitive pooling equilibrium, the price of each good is equal to average marginal costs weighted by equilibrium quantities. We derive modified Ramsey-Boiteux Conditions for optimum taxes in such an economy and show that they include general-equilibrium effects which reflect the initial deviations of producer prices from marginal costs, and the response of equilibrium prices to the taxes levied. It is shown that condition on the monotonicity of demand elasticities enables to sign the deviations from the standard formula. The general analysis is applied to the optimum taxation of annuities and life insurance.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Public Economics.
Volume (Year): 91 (2007)
Issue (Month): 7-8 (August)
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Web page: http://www.elsevier.com/locate/inca/505578
Other versions of this item:
- Eytan Sheshinski, 2006. "Optimum Commodity Taxation in Pooling Equilibria," Discussion Paper Series dp429, The Center for the Study of Rationality, Hebrew University, Jerusalem.
- Eytan Sheshinski, 2006. "Optimum Commodity Taxation in Pooling Equilibria," CESifo Working Paper Series 1815, CESifo Group Munich.
- Eytan Sheshinski, 2006. "Optimum Commodity Taxation in Pooling Equilibri," Levine's Bibliography 321307000000000370, UCLA Department of Economics.
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
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