Tax Reform and Shadow Prices for Pakistan

Ehtisham Ahmad and Nicholas Stern

Oxford Economic Papers, 1990, vol. 42, issue 1, 135-59

Abstract: The assumption, which is common in tax analysis, that producer prices are undistorted may not be appropriate, particularly for developing countries. Where shadow prices (social opportunity costs) and market prices differ, one must replace "revenue" in the "social marginal cost of revenue" (a concept developed in their earlier work) by the shadow cost of output or, equivalently, by the shadow revenue. Rankings of goods by the social marginal cost of shadow revenue for Pakistan (using data from the mid-1970s) are presented and shown to depend sensitively on the difference between market and shadow prices as well as on distributional value judgements. Copyright 1990 by Royal Economic Society.

Date: 1990
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