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Pareto Efficient and Optimal Taxation and the New New Welfare Economics

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  • Joseph E. Stiglitz

Abstract

This paper surveys recent developments in the theory of pareto efficient taxation. This literature attempts to characterize those tax structures which, given the limitations on the government's information and other limitations on the government's ability to impose taxes, maximize the welfare of one individual (group of individuals) subject to the government obtaining a given revenue and subject to other (groups of) individuals attaining certain specified levels of utility. Utilitarian (or other) social welfare functions can then be used to select among these pareto efficient tax structures. While the original goal of this line of research, which was to provide a "scientific" basis for arguing for a progressive tax structure, has not been achieved--and does not seem achievable--important insights have been gleaned, which should enable governments to make better choices of tax policies in the future. On the other hand, this research has cast serious doubt on the relevance of many long standing results, including those of Ramsey concerning the structure of commodity taxes.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2189.

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Date of creation: Mar 1987
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Publication status: published as Stiglitz, Joseph. "Pareto Efficient and Optimal Taxation and the New New Welfare Economics." From Handbook of Public Economics, edited by Alan J. Auerbach and Martin Feldstein, pp. 991-1042. Amsterdam: Elsevier Science Publishers B.V. (North-Holland), 1987.
Handle: RePEc:nbr:nberwo:2189

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  1. Mirrlees, J. A., 1976. "Optimal tax theory : A synthesis," Journal of Public Economics, Elsevier, vol. 6(4), pages 327-358, November.
  2. Joseph E. Stiglitz, 1981. "Self-Selection and Pareto Efficient Taxation," NBER Working Papers 0632, National Bureau of Economic Research, Inc.
  3. Richard Arnott & Joseph E. Stiglitz, 1985. "Randomization with Asymmetric Information a Simplified Exposition," Working Papers 594, Queen's University, Department of Economics.
  4. Azariadis, Costas & Stiglitz, Joseph E, 1983. "Implicit Contracts and Fixed Price Equilibria," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 1-22, Supplemen.
  5. Kenneth L. Judd, 1982. "Redistributive Taxation in a Simple Perfect Foresight Model," Discussion Papers 572, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Stiglitz, Joseph E., 1982. "Utilitarianism and horizontal equity : The case for random taxation," Journal of Public Economics, Elsevier, vol. 18(1), pages 1-33, June.
  7. Dasgupta, Partha S & Stiglitz, Joseph E, 1974. "Benefit-Cost Analysis and Trade Policies," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 1-33, Jan.-Feb..
  8. Atkinson, A. B. & Stiglitz, J. E., 1972. "The structure of indirect taxation and economic efficiency," Journal of Public Economics, Elsevier, vol. 1(1), pages 97-119, April.
  9. Baumol, William J & Bradford, David F, 1970. "Optimal Departures from Marginal Cost Pricing," American Economic Review, American Economic Association, vol. 60(3), pages 265-83, June.
  10. 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.
  11. Cooter, Robert & Helpman, Elhanan, 1974. "Optimal Income Taxation for Transfer Payments under Different Social Welfare Criteria," The Quarterly Journal of Economics, MIT Press, vol. 88(4), pages 656-70, November.
  12. Fair, Ray C, 1971. "The Optimal Distribution of Income," The Quarterly Journal of Economics, MIT Press, vol. 85(4), pages 551-79, November.
  13. Stern, N. H., 1976. "On the specification of models of optimum income taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 123-162.
  14. Phelps, Edmund S, 1973. "Taxation of Wage Income for Economic Justice," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 331-54, August.
  15. Sah, Raaj Kumar & Stiglitz, Joseph E, 1987. "Price Scissors and the Structure of the Economy," The Quarterly Journal of Economics, MIT Press, vol. 102(1), pages 109-34, February.
  16. Raaj Kumar Sah & Joseph E. Stiglitz, 1983. "The Economics of Price Scissors," NBER Working Papers 1156, National Bureau of Economic Research, Inc.
  17. Stiglitz, Joseph E & Dasgupta, P, 1971. "Differential Taxation, Public Goods and Economic Efficiency," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 151-74, April.
  18. Ordover, J. A. & Phelps, E. S., 1979. "The concept of optimal taxation in the overlapping-generations model of capital and wealth," Journal of Public Economics, Elsevier, vol. 12(1), pages 1-26, August.
  19. Varian, Hal R., 1980. "Redistributive taxation as social insurance," Journal of Public Economics, Elsevier, vol. 14(1), pages 49-68, August.
  20. Guesnerie, Roger, 1975. "Production of the public sector and taxation in a simple second best model," Journal of Economic Theory, Elsevier, vol. 10(2), pages 127-156, April.
  21. Michael J. Boskin & Eytan Sheshinski, 1976. "Optimal Income Redistribution When Individual Welfare Depends Upon Relative Income," NBER Working Papers 0144, National Bureau of Economic Research, Inc.
  22. Arnott, Richard & Stiglitz, Joseph E., 1986. "Moral hazard and optimal commodity taxation," Journal of Public Economics, Elsevier, vol. 29(1), pages 1-24, February.
  23. Joel Slemrod & Shlomo Yitzhaki, 1982. "On Choosing a Flat-Rate Income Tax Schedule," NBER Working Papers 1028, National Bureau of Economic Research, Inc.
  24. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  25. Stiglitz, Joseph E., 1983. "Some aspects of the taxation of capital gains," Journal of Public Economics, Elsevier, vol. 21(2), pages 257-294, July.
  26. Deaton, Angus, 1981. "Optimal Taxes and the Structure of Preferences," Econometrica, Econometric Society, vol. 49(5), pages 1245-60, September.
  27. Anthony B. Atkinson, 1976. "Optimal Taxation and the Direct versus Indirect Tax Controversy," Working Papers 247, Queen's University, Department of Economics.
  28. Stiglitz, Joseph E, 1977. "Monopoly, Non-linear Pricing and Imperfect Information: The Insurance Market," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 407-30, October.
  29. P. Diamond & J. Helms & J. Mirrlees, 1978. "Optimal Taxation in a Stochastic Economy: A Cobb-Douglas Example," Working papers 217, Massachusetts Institute of Technology (MIT), Department of Economics.
  30. Stern, Nicholas, 1982. "Optimum taxation with errors in administration," Journal of Public Economics, Elsevier, vol. 17(2), pages 181-211, March.
  31. Greenwald, Bruce C & Stiglitz, Joseph E, 1986. "Externalities in Economies with Imperfect Information and Incomplete Markets," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 229-64, May.
  32. Sadka, Efraim, 1976. "On Income Distribution, Incentive Effects and Optimal Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 43(2), pages 261-67, June.
  33. Allen, Franklin, 1982. "Optimal linear income taxation with general equilibrium effects on wages," Journal of Public Economics, Elsevier, vol. 17(2), pages 135-143, March.
  34. Stiglitz, Joseph E, 1974. "Alternative Theories of Wage Determination and Unemployment in LDC'S: The Labor Turnover Model," The Quarterly Journal of Economics, MIT Press, vol. 88(2), pages 194-227, May.
  35. Christophe Chamley, 1980. "Optimal Intertemporal Taxation and the Public Debt," Cowles Foundation Discussion Papers 554, Cowles Foundation for Research in Economics, Yale University.
  36. Eaton, Jonathan & Rosen, Harvey S., 1980. "Labor supply, uncertainty, and efficient taxation," Journal of Public Economics, Elsevier, vol. 14(3), pages 365-374, December.
  37. Helpman, Elhanan & Sadka, Efraim, 1978. "The optimal income tax : Some comparative statics results," Journal of Public Economics, Elsevier, vol. 9(3), pages 383-393, June.
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