Commodity Taxation and Social Welfare: The Generalised Ramsey Rule

Jean Dreze and David Coady

Working Papers from eSocialSciences

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]

Keywords: Commodity taxation; efficiency; redistribution; shadow prices (search for similar items in EconPapers)
Date: 2010-10
New Economics Papers: this item is included in nep-pub
Note: Institutional Papers
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