Optimum Commodity Taxation in Pooling Equilibria
This paper extends the standard model of optimum commodity taxation (Ramsey (1927) and Diamond-Mirrlees (1971)) to a competitive economy in which some markets are inefficient due to asymmetric information. As in most insurance markets, consumers impose varying costs on suppliers but firms cannot associate costs to customers and consequently all are charged equal prices. In a competitive pooling equilibrium, the price of each good is equal to average marginal costs weighted by equilibrium quantities. We derive modified Ramsey-Boiteux Conditions for optimum taxes in such an economy and show that they include general-equilibrium effects which reflect the initial deviations of producer prices from marginal costs, and the response of equilibrium prices to the taxes levied. It is shown that condition on the monotonicity of demand elasticities enables to sign the deviations from the standard formula. The general analysis is applied to the optimum taxation of annuities and life insurance.
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- J. E. Stiglitz & P. Dasgupta, 1971.
"Differential Taxation, Public Goods, and Economic Efficiency,"
Review of Economic Studies,
Oxford University Press, vol. 38(2), pages 151-174.
- 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.
- Alan J. Auerbach & James R. Hines Jr., 2001. "Perfect Taxation with Imperfect Competition," NBER Working Papers 8138, National Bureau of Economic Research, Inc.
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- Salanié, Bernard, 2011. "The Economics of Taxation," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262016346, September.
- Bernard Salanié, 2003. "The Economics of Taxation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262194864, September.
- Myles, G. D., 1987. "Tax design in the presence of imperfect competition : An example," Journal of Public Economics, Elsevier, vol. 34(3), pages 367-378, December.
- Lau, Lawrence J & Sheshinski, Eytan & Stiglitz, Joseph E, 1978. "Efficiency in the Optimum Supply of Public Goods," Econometrica, Econometric Society, vol. 46(2), pages 269-284, March.
- Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production II: Tax Rules," American Economic Review, American Economic Association, vol. 61(3), pages 261-278, June.
- Guesnerie, Roger & Laffont, Jean-Jacques, 1978. "Taxing price makers," Journal of Economic Theory, Elsevier, vol. 19(2), pages 423-455, December.
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