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Ramsey, Pigou, heterogenous agents, and non-atmospheric consumption externalities

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  • Ronald Wendner

    ()
    ( Karl-Franzens University Graz)

Abstract

This paper analyzes the effects of non-atmospheric consumption externalities on optimal commodity taxation and on the social cost and optimal levels of public good provision. A negative consumption externality, by lowering the social cost of public good provision, may require the second-best level of public good provision to exceed the first-best level. If those households who are most important for building up the consumption reference level respond the least to commodity taxation, heterogeneity may imply an equity-efficiency tradeoff. This tradeoff is present only if the consumption externality is of the non-atmospheric type.

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Bibliographic Info

Paper provided by University of Graz, Department of Economics in its series Graz Economics Papers with number 2012-01.

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Date of creation: Nov 2011
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Handle: RePEc:grz:wpaper:2012-01

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Keywords: Consumption externality; Optimal commodity taxation; Pigou; Public good provision; Ramsey rule;

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Cited by:
  1. Eckerstorfer, Paul & Wendner, Ronald, 2013. "Asymmetric and non-atmospheric consumption externalities, and efficient consumption taxation," Journal of Public Economics, Elsevier, vol. 106(C), pages 42-56.
  2. Alvarez-Cuadrado, Francisco & El-Attar, Mayssun, 2012. "Income Inequality and Saving," IZA Discussion Papers 7083, Institute for the Study of Labor (IZA).
  3. Van Long, Ngo & McWhinnie, Stephanie F., 2012. "The tragedy of the commons in a fishery when relative performance matters," Ecological Economics, Elsevier, vol. 81(C), pages 140-154.

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