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Pareto Improving Taxes

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    Abstract

    We show that in almost every economy with separable externalities, every competitive equilibrium can be Pareto improved by a package of anonymous commodity taxes that causes prices to adjust and markets to reclear at different levels of individual consumption. This constrained suboptimality of competitive allocations might provide a rationale for economic policy in economies with externalities. It shows that policy makers should look for good tax packages that help everybody, rather than thinking taxes must inevitably be bad for some lobby that will oppose them.

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    File URL: http://cowles.econ.yale.edu/P/cd/d16b/d1662.pdf
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    Bibliographic Info

    Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1662.

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    Length: 28 pages
    Date of creation: May 2008
    Date of revision:
    Publication status: Published in Journal of Mathematical Economics (2008), 44: 682-696
    Handle: RePEc:cwl:cwldpp:1662

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    Keywords: Externalities; Commodity taxes; Constrained suboptimality;

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    Cited by:
    1. Jean-Marc Bonnisseau & Elena L. Del Mercato, 2008. "Externalities, consumption constraints and regular economies," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00257731, HAL.
    2. Guo, Xiaolei & Yang, Hai, 2010. "Pareto-improving congestion pricing and revenue refunding with multiple user classes," Transportation Research Part B: Methodological, Elsevier, vol. 44(8-9), pages 972-982, September.
    3. Bisin, A. & Geanakoplos, J.D. & Gottardi, P. & Minelli, E. & Polemarchakis, H., 2011. "Markets and contracts," Journal of Mathematical Economics, Elsevier, vol. 47(3), pages 279-288.
    4. Gaël Giraud & Cécile Renouard, 2011. "In search of an alternative to shareholder value maximization," Documents de travail du Centre d'Economie de la Sorbonne 11038, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    5. Giraud, Gaël & Renouard, Cécile, 2011. "In search of an alternative to shareholder value maximization," ESSEC Working Papers WP1108, ESSEC Research Center, ESSEC Business School.
    6. Gaël Giraud & Cécile Renouard, 2011. "In search of an alternative to shareholder value maximization," Post-Print hal-00609153, HAL.
    7. Weerachart T. Kilenthong & Robert M. Townsend, 2014. "A Market Based Solution to Price Externalities: A Generalized Framework," NBER Working Papers 20275, National Bureau of Economic Research, Inc.
    8. Gaël Giraud & Cécile Renouard, 2011. "In search of an alternative to shareholder value maximization," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00611712, HAL.
    9. Sen, Debapriya & Stamatopoulos, Giorgos, 2013. "Decreasing returns, patent licensing and price-reducing taxes," MPRA Paper 46246, University Library of Munich, Germany.
    10. repec:hal:journl:halshs-00257731 is not listed on IDEAS
    11. repec:hal:journl:halshs-00611712 is not listed on IDEAS

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