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Commodity Taxation and Social Welfare: The Generalised Ramsey Rule

Author

Listed:
  • David Coady

    (International Food Policy Research Institute)

  • Jean Dreze

    (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.

Suggested Citation

  • David Coady & Jean Dreze, 2000. "Commodity Taxation and Social Welfare: The Generalised Ramsey Rule," Working papers 87, Centre for Development Economics, Delhi School of Economics.
    • Handle: RePEc:cde:cdewps:87
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    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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