Topology of utility possibility frontiers of economies with Ramsey taxation
AbstractThis paper establishes the generic size and structure of the second-best Pareto frontier and its various components in private ownership economies with Ramsey taxation. It provides conditions under which the second-best Pareto frontier of an economy with H consumers will have the expected structure of a H . 1-dimensional manifold. In a class of economies, it shows that, generically, while the jointly production and consumption ine cient component of the second-best Pareto manifold is a submanifold that also has a dimension equal to H . 1, the production e cient, consumption e cient, and the rstbest components are lower dimensional, and hence negligible in size, submanifolds. Thus, it formally demonstrates that the economies usually studied in the literature, where all second-best are production e cient, are extremely rare. Market prices cannot be used in lieu of social shadow prices in most economies for cost-bene t tests. This begs further research for recovering the true social shadow prices from the data in such economies.
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Bibliographic InfoPaper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 912.
Date of creation: 2009
Date of revision:
Ramsey taxation ; second-best ; production e ciency ; general equilibrium ; private ownership ; di erential topology ; transversality theorem.;
Find related papers by JEL classification:
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-09-19 (All new papers)
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