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Prices, Taxes and Planning

In: Fiscal Issues in Adjustment in Developing Countries

Author

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  • Nicholas Stern

    (London School of Economics and Political Science)

Abstract

How should market prices facing producers and consumers be linked to production plans? How should we measure the economic benefit of investment decisions, or which prices, we call them shadow prices, should guide investment policy? How should the difference between producer prices and consumer prices, i.e. indirect taxes, be linked to other taxes in the system? How should consumer, producer and shadow prices be related to world prices? Two important lessons emerge immediately we begin to think about these questions. First, pricing, taxation and public production are closely inter-linked and must be discussed together. Second, there are at least four sets of prices to consider, consumer prices, producer prices, shadow prices and world prices, and a serious analysis of prices and taxes in planning must distinguish them carefully, and examine the relationship between them. The purpose of this paper is to show, in a non-technical manner, how recent theory, developed over the last 15–20 years, but some of it over the last 2 or 3 years, can clarify and structure the questions and lessons and show how to think about some of the answers.

Suggested Citation

  • Nicholas Stern, 1993. "Prices, Taxes and Planning," Palgrave Macmillan Books, in: Riccardo Faini & Jaime Melo (ed.), Fiscal Issues in Adjustment in Developing Countries, pages 151-168, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-22790-7_8
    DOI: 10.1007/978-1-349-22790-7_8
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