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Commodity Taxation and Social Welfare : The Generalised Ramsey Rule

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  • Jean Dreze
  • David Coady

Abstract

Commodity taxes have three distinct roles: (1) revenue collection, (2) interpersonal redistribution, and (3) resource allocation. The paper presents an integrated treatment of these three concerns in a second-best general equilibrium framework, which leads to the "generalized Ramsey rule" for optimum taxation. We show how many standard results on optimum taxation and tax reform have a straightforward counterpart in this general framework. Using this framework, we also try to clarify the notion of "deadweight loss", as well as the relation between alternative distributional assumptions and the structure of optimum taxes. [Working Paper No. 87]

Suggested Citation

  • Jean Dreze & David Coady, 2010. "Commodity Taxation and Social Welfare : The Generalised Ramsey Rule," Working Papers id:2936, eSocialSciences.
    • Handle: RePEc:ess:wpaper:id:2936
    Note: Institutional Papers
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    References listed on IDEAS

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    Keywords

    Commodity taxation; efficiency; redistribution; shadow prices;
    All these keywords.

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