Optimum Commodity Taxation in Pooling Equilibri
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 InfoPaper provided by UCLA Department of Economics in its series Levine's Bibliography with number 321307000000000370.
Date of creation: 11 Sep 2006
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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.
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-09-16 (All new papers)
- NEP-PBE-2006-09-16 (Public Economics)
- NEP-PUB-2006-09-16 (Public Finance)
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