IDEAS home Printed from https://ideas.repec.org/p/wrk/warwec/117.html
   My bibliography  Save this paper

Price Changes and Optimum Taxation in a Many-Consumer Economy

Author

Abstract

This paper follows recent work on the welfare effects of small perturbations from an initial general equilibrium with some distortions. Dixit (1975) and Hatta (1977) have analysed the one-consumer economy, and found several simple prescriptions for policy changes to improve welfare. Guesnerie (1977) has studied the many-consumer case when constant returns to scale prevail or profits are taxed at 100%. Diewert (1977) considers profits as returns to artifically defined fixed factors, and allows taxation of profits at any specified rates. In both of these last two papers it turns out that the simplicity of welfare-imoroving policies is lost in the many consumer case. Increases inb a Bergson type social welfare function depend very crucially on the distribution of ownership of fixed factors. General formulae mean little, and we must consider very special cases in order to obtain concrete results.Improvements in the Pareto sense are even harder to generate by simple formulae. In this paper I broadly follow the approach of Diewert, but try a different tack by concentrating on the question of when Bergson or Pareto improvement is not possible, thus obtaining local necessary conditions for welfare optimality Pareto efficiency of the initial equilibrium. This approach helps shed new light on aa question that has been much discussed (eg Dasgupta and Stiglitz (1971) and 1972)) : if profit taxation alone can yield enough revenue to finance government expenditures, is it optimal to rely on that alone and leave the commodities untaxed? The approach has added advantages of allowing a naturally paralled treatment of welfare optimality and Pareto efficiency, and of tying together diverse previous models and results.

Suggested Citation

  • Dixit, A.K., 1977. "Price Changes and Optimum Taxation in a Many-Consumer Economy," The Warwick Economics Research Paper Series (TWERPS) 117, University of Warwick, Department of Economics.
  • Handle: RePEc:wrk:warwec:117
    as

    Download full text from publisher

    File URL: https://warwick.ac.uk/fac/soc/economics/research/workingpapers/1968-1977/twerp117.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Andrea Galeotti & Benjamin Golub & Sanjeev Goyal & Eduard Talam`as & Omer Tamuz, 2021. "Taxes and Market Power: A Principal Components Approach," Papers 2112.08153, arXiv.org, revised Jun 2022.
    2. W D A Bryant, 2009. "General Equilibrium:Theory and Evidence," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 6875, December.
    3. Ahmad, Ehtisham & Stern, Nicholas, 1983. "Tax Reform, Pareto Improvements, And The Inverse Optimum," Discussion Papers 272814, University of Warwick - Department of Economics.
    4. Alan Krause, 2004. "The Dynamic Process of Tax Reform," Econometric Society 2004 Australasian Meetings 119, Econometric Society.
    5. Odd E. Nygård & John T. Revesz, 2015. "Optimal indirect taxation and the uniformity debate: A review of theoretical results and empirical contributions," Discussion Papers 809, Statistics Norway, Research Department.
    6. Guesnerie, R., 1995. "The genealogy of modern theoretical public economics: From first best to second best," European Economic Review, Elsevier, vol. 39(3-4), pages 353-381, April.
    7. Guy Gilbert, 1982. "Economie de la réforme fiscale et systèmes fiscaux comparés : une revue de littérature," Revue Économique, Programme National Persée, vol. 33(4), pages 750-768.
    8. Gareth D. Myles, 1995. "Imperfect Competition and Industry-Specific Input Taxes," Public Finance Review, , vol. 23(3), pages 336-355, July.
    9. Paul Oslington, 2012. "General Equilibrium: Theory and Evidence," The Economic Record, The Economic Society of Australia, vol. 88(282), pages 446-448, September.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wrk:warwec:117. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Margaret Nash (email available below). General contact details of provider: https://edirc.repec.org/data/dewaruk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.