Taxes, Subsidies, Standards, and Social Choices
A general equilibrium model of an economy characterized by a production externality is presented. Preferences of individuals in the economy for the use of taxes, subsidies, and output quotas as competing instruments for internalizing the externality are compared in the presence of alternative endowments of resources across agents in the economy and a distribution mechanism permitting different tax or transfer progressivity. The tax, subsidy, and standard are demonstrated, at different times, to emerge as the socially preferred instrument under majority-rule voting. The implementation of inefficient policy instruments is not necessarily the result of effective minority interest-group pressure.
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Volume (Year): 44 (1989)
Issue (Month): 2 ()
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