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Restoring Ramsey tax lessons to Mirrleesian tax settings: Atkinson–Stiglitz and Ramsey reconciled

Author

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  • Helmuth Cremer

    (University of Toulouse Capitole)

  • Firouz Gahvari

    (University of Illinois at Urbana-Champaign)

Abstract

This paper restores many of the Ramsey tax/pricing lessons perceived as outdated in the optimal tax literature following the Atkinson and Stiglitz (J Public Econ 6:55–75, 1976) framework wherein differential commodity taxes are considered to be redundant. The key to our findings is the incorporation of a “break-even constraint” for public firms into the Atkinson and Stiglitz framework. Break-even constraints are fundamental to the regulatory pricing literature but have somehow been overlooked in the optimal tax literature. Incorporating them reconciles the optimal-tax and the regulatory-pricing views on Ramsey tax/pricing rules.

Suggested Citation

  • Helmuth Cremer & Firouz Gahvari, 2017. "Restoring Ramsey tax lessons to Mirrleesian tax settings: Atkinson–Stiglitz and Ramsey reconciled," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 49(1), pages 11-35, June.
    • Handle: RePEc:spr:sochwe:v:49:y:2017:i:1:d:10.1007_s00355-017-1046-8
    DOI: 10.1007/s00355-017-1046-8
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    References listed on IDEAS

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