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Ramsey, Pigou, heterogenous agents, and non-atmospheric consumption externalities

  • Ronald Wendner

    ()

    ( Karl-Franzens University Graz)

This paper analyzes the effects of non-atmospheric consumption externalities on optimal commodity taxation and on the social cost and optimal levels of public good provision. A negative consumption externality, by lowering the social cost of public good provision, may require the second-best level of public good provision to exceed the first-best level. If those households who are most important for building up the consumption reference level respond the least to commodity taxation, heterogeneity may imply an equity-efficiency tradeoff. This tradeoff is present only if the consumption externality is of the non-atmospheric type.

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File URL: http://www-classic.uni-graz.at/vwlwww/forschung/RePEc/wpaper/2012-01.pdf
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Paper provided by University of Graz, Department of Economics in its series Graz Economics Papers with number 2012-01.

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Date of creation: Nov 2011
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Handle: RePEc:grz:wpaper:2012-01
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