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Commodity Taxation and Social Welfare: The Generalised Ramsey Rule

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  • David Coady

    (International Food Policy Research Institute)

  • Jean Dreze

    (Delhi School of Economics)

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    Abstract

    Commodity taxes have three distinct roles: (1) revenue collection, (2) interpersonal redistribution, and (3) resource allocation. The paper presents an integrated treatment of these three concerns in a second-best general equilibrium framework, which leads to the "generalised Ramsey rule for optimum taxation. We show how many standard results on optimum taxation and tax reform have straightforward counterpart in this general framework. Using this framework, we also try to clarify the notion of "deadweight loss", as well as the relation between alternative distributional assumptions and the structure of optimum taxes.

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    Bibliographic Info

    Paper provided by Centre for Development Economics, Delhi School of Economics in its series Working papers with number 87.

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    Length: 36 pages
    Date of creation: Sep 2000
    Date of revision:
    Handle: RePEc:cde:cdewps:87

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    1. Atkinson, Anthony B & Stern, N H, 1974. "Pigou, Taxation and Public Goods," Review of Economic Studies, Wiley Blackwell, vol. 41(1), pages 119-28, January.
    2. Dixit, Avinash, 1975. "Welfare effects of tax and price changes," Journal of Public Economics, Elsevier, vol. 4(2), pages 103-123, February.
    3. P. A. Diamond & J. A. Mirrlees, 1975. "Private Constant Returns and Public Shadow Prices," Working papers 151, Massachusetts Institute of Technology (MIT), Department of Economics.
    4. Ahmad,Etisham & Stern,Nicholas, 1991. "The Theory and Practice of Tax Reform in Developing Countries," Cambridge Books, Cambridge University Press, number 9780521397421, October.
    5. David Coady, 1997. "Agricultural Pricing Policies in Developing Countries: An Application to Pakistan," International Tax and Public Finance, Springer, vol. 4(1), pages 39-57, January.
    6. Alan J. Auerbach, 1982. "The Theory of Excess Burden and Optimal Taxation," NBER Working Papers 1025, National Bureau of Economic Research, Inc.
    7. Dreze, Jean & Stern, Nicholas, 1987. "The theory of cost-benefit analysis," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 14, pages 909-989 Elsevier.
    8. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
    9. Sandmo, Agnar, 1976. "Optimal taxation : An introduction to the literature," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 37-54.
    10. Deaton, Angus & Stern, Nicholas, 1986. "Optimally uniform commodity taxes, taste differences and lump-sum grants," Economics Letters, Elsevier, vol. 20(3), pages 263-266.
    11. Dixit, Avinash, 1985. "Tax policy in open economies," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 6, pages 313-374 Elsevier.
    12. Triest, Robert K, 1990. "The Relationship between the Marginal Cost of Public Funds and Marginal Excess Burden," American Economic Review, American Economic Association, vol. 80(3), pages 557-66, June.
    13. Dixit, Avinash K, 1970. "On the Optimum Structure of Commodity Taxes," American Economic Review, American Economic Association, vol. 60(3), pages 295-301, June.
    14. Guesnerie, Roger, 1979. "General statements on second best pareto optimality," Journal of Mathematical Economics, Elsevier, vol. 6(2), pages 169-194, July.
    15. Sen, Amartya K, 1972. "Control Areas and Accounting Prices: An Approach to Economic Evaluation," Economic Journal, Royal Economic Society, vol. 82(325), pages 486-501, Supplemen.
    16. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
    17. J. A. Mirrlees, 1976. "Optimal Tax Theory: A Synthesis," Working papers 176, Massachusetts Institute of Technology (MIT), Department of Economics.
    18. Kay, J. A., 1980. "The deadweight loss from a tax system," Journal of Public Economics, Elsevier, vol. 13(1), pages 111-119, February.
    19. Hoff, Karla, 1994. "The second theorem of the second best," Journal of Public Economics, Elsevier, vol. 54(2), pages 223-242, June.
    20. Dreze, Jean & Stern, Nicholas, 1990. "Policy reform, shadow prices, and market prices," Journal of Public Economics, Elsevier, vol. 42(1), pages 1-45, June.
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