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

  • Wendner, Ronald

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://mpra.ub.uni-muenchen.de/35015/1/MPRA_paper_35015.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 35015.

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Date of creation: 25 Nov 2011
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Handle: RePEc:pra:mprapa:35015
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