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Commodity Taxation and Social Welfare: The Generalized Ramsey Rule

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  • David Coady
  • Jean Drèze

Abstract

Commodity taxes have three distinct roles: (1) revenue collection, (2) interpersonal redistribution, and (3) resource allocation. The paper presents an integrated treatment of these three concerns in a second-best general equilibrium framework, which leads to the “generalized Ramsey rule” for optimum taxation. We show how many standard results on optimum taxation and tax reform have a straightforward counterpart in this general framework. Using this framework, we also try to clarify the notion of “deadweight loss,” as well as the relation between alternative distributional assumptions and the structure of optimum taxes. Copyright Kluwer Academic Publishers 2002

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  • David Coady & Jean Drèze, 2002. "Commodity Taxation and Social Welfare: The Generalized Ramsey Rule," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 9(3), pages 295-316, May.
  • Handle: RePEc:kap:itaxpf:v:9:y:2002:i:3:p:295-316
    DOI: 10.1023/A:1016240915589
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    Cited by:

    1. Stefan Homburg, 2004. "A New Approach to Optimal Commodity Taxation," CESifo Working Paper Series 1231, CESifo.
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    3. David Coady, 2006. "The Welfare Returns to Finer Targeting: The Case of The Progresa Program in Mexico," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 13(2), pages 217-239, May.
    4. Bucci, Alberto & Florio, Massimo & La Torre, Davide, 2012. "Government spending and growth in second-best economies," Economic Modelling, Elsevier, vol. 29(3), pages 654-663.

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