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Pareto improving taxes

  • Geanakoplos, John
  • Polemarchakis, H.M.

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.

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Article provided by Elsevier in its journal Journal of Mathematical Economics.

Volume (Year): 44 (2008)
Issue (Month): 7-8 (July)
Pages: 682-696

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Handle: RePEc:eee:mateco:v:44:y:2008:i:7-8:p:682-696
Contact details of provider: Web page: http://www.elsevier.com/locate/jmateco

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  6. CHIAPPORI, Pierre-André & EKELAND, Ivar & KUBLER, Félix & POLEMARCHAKIS, Heracles, 2000. "The identification of preferences from equilibrium prices under uncertainty," CORE Discussion Papers 2000025, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Alberto Bisin & John Geanakoplos & Piero Gottardi & Enrico Minelli & Herakles Polemarchakis, 2010. "Markets and contracts," Economics Working Papers ECO2010/29, European University Institute.
    • Alberto Bisin & John Geanakoplos & Piero Gottardi & Enrico Minelli & Heracles Polemarchakis, 2009. "Markets and Contracts," Working Papers 0915, University of Brescia, Department of Economics.
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