Pareto Improving Taxes
AbstractWe show that in almost every economy with separable externalities, every competitive equilibrium can be Pareto improved by a package of anonymous commodity taxes that cause prices to adjust and markets to reclear at different levels of individual consumption. The argument can be extended to economies with strategic interactions, incomplete asset markets or asymmetric information. This constrained suboptimality of competitive allocations might provide a rationale for economic policy in economies with externalities.
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Bibliographic InfoPaper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1576.
Length: 27 pages
Date of creation: Aug 2006
Date of revision:
Publication status: Published in Journal of Mathematical Economics (2008), 44: 682-696
Note: CFP 1235.
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Phone: (203) 432-3702
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Web page: http://cowles.econ.yale.edu/
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
Find related papers by JEL classification:
- D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
- D60 - Microeconomics - - Welfare Economics - - - General
- D62 - Microeconomics - - Welfare Economics - - - Externalities
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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