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Pareto efficient and optimal taxation and the new new welfare economics

In: Handbook of Public Economics

  • Stiglitz, Joseph E.

This paper surveys recent developments in the theory of pareto efficient taxation. This literature attempts to characterize those tax structures which, given the limitations on the government's information and other limitations on the government's ability to impose taxes, maximize the welfare of one individual (group of individuals) subject to the government obtaining a given revenue and subject to other (groups of) individuals attaining certain specified levels of utility. Utilitarian (or other) social welfare functions can then be used to select among these pareto efficient tax structures. While the original goal of this line of research, which was to provide a "scientific" basis for arguing for a progressive tax structure, has not been achieved--and does not seem achievable--important insights have been gleaned, which should enable governments to make better choices of tax policies in the future. On the other hand, this research has cast serious doubt on the relevance of many long standing results, including those of Ramsey concerning the structure of commodity taxes.

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This chapter was published in:
  • A. J. Auerbach & M. Feldstein (ed.), 1987. "Handbook of Public Economics," Handbook of Public Economics, Elsevier, edition 1, volume 2, number 2.
  • This item is provided by Elsevier in its series Handbook of Public Economics with number 2-15.
    Handle: RePEc:eee:pubchp:2-15
    Contact details of provider: Web page: http://www.elsevier.com/wps/find/bookseriesdescription.cws_home/BS_HE/description

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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    1. A. B. Atkinson, 1977. "Optimal Taxation and the Direct versus Indirect Tax Controversy," Canadian Journal of Economics, Canadian Economics Association, vol. 10(4), pages 590-606, November.
    2. Guesnerie, Roger, 1975. "Production of the public sector and taxation in a simple second best model," Journal of Economic Theory, Elsevier, vol. 10(2), pages 127-156, April.
    3. Bruce C. Greenwald & Joseph E. Stiglitz, 1986. "Externalities in Economies with Imperfect Information and Incomplete Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 229-264.
    4. Kenneth L. Judd, 1982. "Redistributive Taxation in a Simple Perfect Foresight Model," Discussion Papers 572, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    5. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
    6. Mirrlees, J. A., 1976. "Optimal tax theory : A synthesis," Journal of Public Economics, Elsevier, vol. 6(4), pages 327-358, November.
    7. Arnott, Richard & Stiglitz, Joseph E., 1986. "Moral hazard and optimal commodity taxation," Journal of Public Economics, Elsevier, vol. 29(1), pages 1-24, February.
    8. Stern, N. H., 1976. "On the specification of models of optimum income taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 123-162.
    9. Stern, Nicholas, 1982. "Optimum taxation with errors in administration," Journal of Public Economics, Elsevier, vol. 17(2), pages 181-211, March.
    10. Michael J. Boskin & Eytan Sheshinski, 1976. "Optimal Income Redistribution When Individual Welfare Depends Upon Relative Income," NBER Working Papers 0144, National Bureau of Economic Research, Inc.
    11. Joseph E. Stiglitz, 1983. "Some Aspects of the Taxation of Capital Gains," NBER Working Papers 1094, National Bureau of Economic Research, Inc.
    12. Baumol, William J & Bradford, David F, 1970. "Optimal Departures from Marginal Cost Pricing," American Economic Review, American Economic Association, vol. 60(3), pages 265-83, June.
    13. Ordover, J. A. & Phelps, E. S., 1979. "The concept of optimal taxation in the overlapping-generations model of capital and wealth," Journal of Public Economics, Elsevier, vol. 12(1), pages 1-26, August.
    14. Joel Slemrod & Shlomo Yitzhaki, 1982. "On Choosing a Flat-Rate Income Tax Schedule," NBER Working Papers 1028, National Bureau of Economic Research, Inc.
    15. Partha Dasgupta & Joseph E. Stiglitz, 1972. "Benefit-Cost Analysis and Trade Policies," Cowles Foundation Discussion Papers 340, Cowles Foundation for Research in Economics, Yale University.
    16. Joseph E. Stiglitz, 1981. "Utilitarianism and Horizontal Equity: The Case for Random Taxation," NBER Working Papers 0694, National Bureau of Economic Research, Inc.
    17. Varian, Hal R., 1980. "Redistributive taxation as social insurance," Journal of Public Economics, Elsevier, vol. 14(1), pages 49-68, August.
    18. Helpman, Elhanan & Sadka, Efraim, 1978. "The optimal income tax : Some comparative statics results," Journal of Public Economics, Elsevier, vol. 9(3), pages 383-393, June.
    19. Ray C. Fair, 1971. "The Optimal Distribution of Income," The Quarterly Journal of Economics, Oxford University Press, vol. 85(4), pages 551-579.
    20. Christophe Chamley, 1980. "Optimal Intertemporal Taxation and the Public Debt," Cowles Foundation Discussion Papers 554, Cowles Foundation for Research in Economics, Yale University.
    21. Robert Cooter & Elhanan Helpman, 1974. "Optimal Income Taxation for Transfer Payments Under Different Social Welfare Criteria," The Quarterly Journal of Economics, Oxford University Press, vol. 88(4), pages 656-670.
    22. Allen, Franklin, 1982. "Optimal linear income taxation with general equilibrium effects on wages," Journal of Public Economics, Elsevier, vol. 17(2), pages 135-143, March.
    23. P. Diamond & J. Helms & J. Mirrlees, 1978. "Optimal Taxation in a Stochastic Economy: A Cobb-Douglas Example," Working papers 217, Massachusetts Institute of Technology (MIT), Department of Economics.
    24. Joseph E. Stiglitz, 1981. "Self-Selection and Pareto Efficient Taxation," NBER Working Papers 0632, National Bureau of Economic Research, Inc.
    25. Raaj Kumar Sah & Joseph E. Stiglitz, 1983. "The Economics of Price Scissors," NBER Working Papers 1156, National Bureau of Economic Research, Inc.
    26. Atkinson, A. B. & Stiglitz, J. E., 1972. "The structure of indirect taxation and economic efficiency," Journal of Public Economics, Elsevier, vol. 1(1), pages 97-119, April.
    27. Joseph E. Stiglitz & Partha Dasgupta, 1970. "Differential Taxation, Public Goods, and Economic Efficiency," Cowles Foundation Discussion Papers 299, Cowles Foundation for Research in Economics, Yale University.
    28. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
    29. W. J. Corlett & D. C. Hague, 1953. "Complementarity and the Excess Burden of Taxation," Review of Economic Studies, Oxford University Press, vol. 21(1), pages 21-30.
    30. Eaton, Jonathan & Rosen, Harvey S., 1980. "Labor supply, uncertainty, and efficient taxation," Journal of Public Economics, Elsevier, vol. 14(3), pages 365-374, December.
    31. repec:pri:indrel:dsp013r074t93w is not listed on IDEAS
    32. Joseph E. Stiglitz, 1977. "Monopoly, Non-linear Pricing and Imperfect Information: The Insurance Market," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 407-430.
    33. Edmund S. Phelps, 1973. "Taxation of Wage Income for Economic Justice," The Quarterly Journal of Economics, Oxford University Press, vol. 87(3), pages 331-354.
    34. Efraim Sadka, 1976. "On Income Distribution, Incentive Effects and Optimal Income Taxation," Review of Economic Studies, Oxford University Press, vol. 43(2), pages 261-267.
    35. Joseph E. Stiglitz, 1974. "Alternative Theories of Wage Determination and Unemployment in LDC's: The Labor Turnover Model," The Quarterly Journal of Economics, Oxford University Press, vol. 88(2), pages 194-227.
    36. Raaj Kumar Sah & Joseph E. Stiglitz, 1987. "Price Scissors and the Structure of the Economy," The Quarterly Journal of Economics, Oxford University Press, vol. 102(1), pages 109-134.
    37. Richard Arnott & Joseph E. Stiglitz, 1985. "Randomization with Asymmetric Information a Simplified Exposition," Working Papers 594, Queen's University, Department of Economics.
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