Commodity Taxation and Social Welfare: The Generalised Ramsey Rule

David Coady and Jean Dreze
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David Coady: International Food Policy Research Institute
Jean Dreze: Delhi School of Economics

No 87, Working papers from Centre for Development Economics, Delhi School of Economics

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 "generalised Ramsey rule for optimum taxation. We show how many standard results on optimum taxation and tax reform have 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.

JEL-codes: H21 H23 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2000-09
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