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Pareto improving taxes

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  • Geanakoplos, John
  • Polemarchakis, H.M.

Abstract

We show that in almost every economy with separable externalities, every competitive equilibrium can be Pareto improved by a package of anonymous commodity taxes that causes prices to adjust and markets to reclear at different levels of individual consumption. This constrained suboptimality of competitive allocations might provide a rationale for economic policy in economies with externalities. It shows that policy makers should look for good tax packages that help everybody, rather than thinking taxes must inevitably be bad for some lobby that will oppose them.

Suggested Citation

  • Geanakoplos, John & Polemarchakis, H.M., 2008. "Pareto improving taxes," Journal of Mathematical Economics, Elsevier, vol. 44(7-8), pages 682-696, July.
  • Handle: RePEc:eee:mateco:v:44:y:2008:i:7-8:p:682-696
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Weerachart T. Kilenthong & Robert M. Townsend, 2014. "A Market Based Solution to Price Externalities: A Generalized Framework," NBER Working Papers 20275, National Bureau of Economic Research, Inc.
    2. Jean-Marc Bonnisseau & Elena Mercato, 2010. "Externalities, consumption constraints and regular economies," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 44(1), pages 123-147, July.
    3. repec:eee:mateco:v:70:y:2017:i:c:p:166-175 is not listed on IDEAS
    4. Gaël Giraud & Cécile Renouard, 2011. "In search of an alternative to shareholder value maximization," Post-Print hal-00609153, HAL.
    5. Elena L. Mercato & Vincenzo Platino, 2017. "On the regularity of smooth production economies with externalities: competitive equilibrium à la Nash," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 63(1), pages 287-307, January.
    6. Bisin, A. & Geanakoplos, J.D. & Gottardi, P. & Minelli, E. & Polemarchakis, H., 2011. "Markets and contracts," Journal of Mathematical Economics, Elsevier, vol. 47(3), pages 279-288.
    7. repec:hal:journl:halshs-00611712 is not listed on IDEAS
    8. repec:hal:journl:halshs-01162039 is not listed on IDEAS
    9. Giraud, Gaël & Renouard, Cécile, 2011. "In search of an alternative to shareholder value maximization," ESSEC Working Papers WP1108, ESSEC Research Center, ESSEC Business School.
    10. Sen, Debapriya & Stamatopoulos, Giorgos, 2013. "Decreasing returns, patent licensing and price-reducing taxes," MPRA Paper 46246, University Library of Munich, Germany.
    11. Herakles Polemarchakis, 2015. "Markets and Efficiency," The Japanese Economic Review, Japanese Economic Association, vol. 66(2), pages 150-166, June.
    12. Gaël Giraud & Cécile Renouard, 2011. "In search of an alternative to shareholder value maximization," Documents de travail du Centre d'Economie de la Sorbonne 11038, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    13. Rodrigo A. Velez, 2016. "Inequity-averse preferences in general equilibrium," Working Papers 20160111-001, Texas A&M University, Department of Economics.
    14. Guo, Xiaolei & Yang, Hai, 2010. "Pareto-improving congestion pricing and revenue refunding with multiple user classes," Transportation Research Part B: Methodological, Elsevier, vol. 44(8-9), pages 972-982, September.
    15. repec:spr:ecogov:v:18:y:2017:i:3:d:10.1007_s10101-017-0190-z is not listed on IDEAS
    16. Gaël Giraud & Cécile Renouard, 2011. "In search of an alternative to shareholder value maximization," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00611712, HAL.
    17. repec:ebl:ecbull:eb-17-00569 is not listed on IDEAS

    More about this item

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • D60 - Microeconomics - - Welfare Economics - - - General
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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