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Pareto Improving Taxes

  • J. D. Geanakoplos
  • H. M. Polemarchakis
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    We show that in almost every economy with separable externalities, every competitive equilibrium can be Pareto improved by a package of anonymous commodity taxes that causes prices to adjust and markets to reclear at different levels of individual consumption. This constrained suboptimality of competitive allocations might provide a rationale for economic policy in economies with externalities. It shows that policy makers should look for good tax packages that help everybody, rather than thinking taxes must inevitably be bad for some lobby that will oppose them.

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    Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 321307000000000350.

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    Date of creation: 02 Sep 2006
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    Handle: RePEc:cla:levrem:321307000000000350
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    2. Guesnerie Roger, 1976. "On the direction of tax reform," CEPREMAP Working Papers (Couverture Orange) 7603, CEPREMAP.
    3. Geanakoplos,J.D. & Polemarchakis,H.M., 1988. "Observability and optimality," Discussion Paper Serie A 216, University of Bonn, Germany.
    4. Hurwicz, Leonid, 1973. "The Design of Mechanisms for Resource Allocation," American Economic Review, American Economic Association, vol. 63(2), pages 1-30, May.
    5. Debreu, Gerard, 1976. "Smooth Preferences: A Corrigendum," Econometrica, Econometric Society, vol. 44(4), pages 831-32, July.
    6. Alessandro Citanna & Atsushi Kajii & Antonio Villanacci, 1998. "Constrained suboptimality in incomplete markets: a general approach and two applications," Post-Print hal-00479390, HAL.
    7. 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.
    8. P. A. Diamond, 1975. "A Many-Person Ramsey Tax Rule," Working papers 146, Massachusetts Institute of Technology (MIT), Department of Economics.
    9. Peter A. Diamond, 1973. "Consumption Externalities and Imperfect Corrective Pricing," Bell Journal of Economics, The RAND Corporation, vol. 4(2), pages 526-538, Autumn.
    10. Felix Kübler & Pierre-Andre Chiappori & Ivar Ekeland & Heracles M. Polemarchakis, 2000. "The Identification of Preferences from Equilibrium Prices," Working Papers hal-00598240, HAL.
    11. DEBREU, Gérard, . "Economies with a finite set of equilibria," CORE Discussion Papers RP 67, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    12. POLEMARCHAKIS, Heracles M. & CHIAPPORI, P. A. & KUBLER, F. & EKELAND, I., 2000. "The identification of preferences from equilibrium prices under uncertainty," Les Cahiers de Recherche 689, HEC Paris.
    13. DEBREU, Gérard, . "Smooth preferences," CORE Discussion Papers RP 132, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    14. 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.
    15. Kenneth Arrow, 1970. "Political and Economic Evaluation of Social Effects and Externalities," NBER Chapters, in: The Analysis of Public Output, pages 1-30 National Bureau of Economic Research, Inc.
    16. CITANNA, Alessandro & POLEMARCHAKIS, Herakles M. & TIRELLI, Mario, 2001. "The taxation of trades in assets," CORE Discussion Papers 2001017, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    17. J. A. Mirrlees, 1999. "The Theory of Moral Hazard and Unobservable Behaviour: Part I," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 3-21.
    18. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
    19. Joseph E. Stiglitz, 1982. "The Inefficiency of the Stock Market Equilibrium," Review of Economic Studies, Oxford University Press, vol. 49(2), pages 241-261.
    20. Snyder, Susan K., 1999. "Testable restrictions of Pareto optimal public good provision," Journal of Public Economics, Elsevier, vol. 71(1), pages 97-119, January.
    21. Alberto Bisin & John Geanakoplos & Piero Gottardi & Enrico Minelli & Heracles Polemarchakis, 2009. "Markets and Contracts," Working Papers 0915, University of Brescia, Department of Economics.
    22. 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 261-78, June.
    23. Hurwicz, Leonid, 1979. "On allocations attainable through Nash equilibria," Journal of Economic Theory, Elsevier, vol. 21(1), pages 140-165, August.
    24. 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.
    25. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
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