Topology of utility possibility frontiers of economies with Ramsey taxation

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Topology of utility possibility frontiers of economies with Ramsey taxation

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Murty, Sushama (Department of Economics, University of Warwick)

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Sushama M. Murty

Abstract

This 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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Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 912.

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Date of creation: 2009
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Handle: RePEc:wrk:warwec:912

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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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Fuchs, Gerard & Guesnerie, Roger, 1983. "Structure of Tax Equilibria," Econometrica, Econometric Society, vol. 51(2), pages 403-34, March. [Downloadable!] (restricted)
Boadway, Robin W, 1975. "Cost-benefit Rules in General Equilibrium," Review of Economic Studies, Blackwell Publishing, vol. 42(3), pages 361-74, July. [Downloadable!] (restricted)
Other versions:
- Robin Boadway, 1973. "Cost-Benefit Rules in General Equilibrium," Working Papers 137, Queen's University, Department of Economics.
Debreu, Gerard, 1970. "Economies with a Finite Set of Equilibria," Econometrica, Econometric Society, vol. 38(3), pages 387-92, May. [Downloadable!] (restricted)
Guesnerie, Roger, 1979. "Financing Public Goods with Commodity Taxes: The Tax Reform Viewpoint," Econometrica, Econometric Society, vol. 47(2), pages 393-421, March. [Downloadable!] (restricted)
Other versions:
- Guesnerie Roger, 1977. "Financing public goods with commodity taxes : the tax reform view point," CEPREMAP Working Papers (Couverture Orange) 7702, CEPREMAP.
Hahn, Frank H., 1973. "On optimum taxation," Journal of Economic Theory, Elsevier, vol. 6(1), pages 96-106, February. [Downloadable!] (restricted)
Zeckhauser, Richard J & Weinstein, Milton C, 1974. "The Topology of Pareto-Optimal Regions with Public Goods," Econometrica, Econometric Society, vol. 42(4), pages 643-66, July. [Downloadable!] (restricted)
Blackorby, Charles & Murty, Sushama, 2009. "Constraints on Income Distribution and Production Efficiency In Economies with Ramsey Taxation," The Warwick Economics Research Paper Series (TWERPS) 908, University of Warwick, Department of Economics. [Downloadable!]
Atsushi Kajii & Antonio Villanacci & Alessandro Citanna, 1998. "Constrained suboptimality in incomplete markets: a general approach and two applications," Economic Theory, Springer, vol. 11(3), pages 495-521. [Downloadable!] (restricted)

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This page was last updated on 2009-11-25.

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