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Pareto improving taxes with non-separable externalities: A differentiable approach

Author

Listed:
  • Nguyen, Van-Quy
  • Bonnisseau, Jean-Marc
  • del Mercato, Elena L.

Abstract

We consider a pure exchange economy with consumption externalities in preferences. We study competitive equilibria with “small” taxes and lump-sum transfers that make everyone strictly better off. We extend the result of Geanakoplos and Polemarchakis (2008), on the generic existence of Pareto improving policies with uniform taxes and uniform transfers when there are fewer consumer types than commodities, to the case of general preferences that need not be separable between own consumption and externalities. We also prove the generic existence of Pareto improving policies with uniform taxes and personalized transfers, or vice-versa, when there are at least as many types as commodities. Finally, we study the existence of Pareto improving policies for Bergson-Samuelson utilities and two-type economies, without perturbing utilities.

Suggested Citation

  • Nguyen, Van-Quy & Bonnisseau, Jean-Marc & del Mercato, Elena L., 2026. "Pareto improving taxes with non-separable externalities: A differentiable approach," Journal of Mathematical Economics, Elsevier, vol. 124(C).
    • Handle: RePEc:eee:mateco:v:124:y:2026:i:c:s0304406826000364
    DOI: 10.1016/j.jmateco.2026.103248
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    Keywords

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    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • D60 - Microeconomics - - Welfare Economics - - - General
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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