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Pareto improving taxes with non-separable externalities: A differentiable approach

Author

Listed:
  • Van-Quy Nguyen

    (National Economics University - National Economics University)

  • Jean-Marc Bonnisseau

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - ENPC - École nationale des ponts et chaussées - IP Paris - Institut Polytechnique de Paris)

  • Elena del Mercato

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - ENPC - École nationale des ponts et chaussées - IP Paris - Institut Polytechnique de Paris)

Abstract

We consider a pure exchange economy with consumption externalities in preferences. We study competitive equilibria with "small" taxes and lump-sum transfers that make everyone strictly better off. We extend the result of Geanakoplos and Polemarchakis (2008), on the generic existence of Pareto improving policies with uniform taxes and uniform transfers when there are fewer consumer types than commodities, to the case of general preferences that need not be separable between own consumption and externalities. We also prove the generic existence of Pareto improving policies with uniform taxes and personalized transfers, or vice-versa, when there are at least as many types as commodities. Finally, we study the existence of Pareto improving policies for Bergson-Samuelson utilities and two-type economies, without perturbing utilities.

Suggested Citation

  • Van-Quy Nguyen & Jean-Marc Bonnisseau & Elena del Mercato, 2026. "Pareto improving taxes with non-separable externalities: A differentiable approach," PSE-Ecole d'économie de Paris (Postprint) halshs-05649714, HAL.
    • Handle: RePEc:hal:pseptp:halshs-05649714
    DOI: 10.1016/j.jmateco.2026.103248
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