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Topology of utility possibility frontiers of economies with Ramsey taxation

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  • Murty, Sushama

    (Department of Economics, University of Warwick)

Abstract

This paper establishes the generic size and structure of the second-best Pareto frontier and its various components in private ownership economies with Ramsey taxation. It provides conditions under which the second-best Pareto frontier of an economy with H consumers will have the expected structure of a H . 1-dimensional manifold. In a class of economies, it shows that, generically, while the jointly production and consumption ine cient component of the second-best Pareto manifold is a submanifold that also has a dimension equal to H . 1, the production e cient, consumption e cient, and the rstbest components are lower dimensional, and hence negligible in size, submanifolds. Thus, it formally demonstrates that the economies usually studied in the literature, where all second-best are production e cient, are extremely rare. Market prices cannot be used in lieu of social shadow prices in most economies for cost-bene t tests. This begs further research for recovering the true social shadow prices from the data in such economies.

Suggested Citation

  • Murty, Sushama, 2009. "Topology of utility possibility frontiers of economies with Ramsey taxation," The Warwick Economics Research Paper Series (TWERPS) 912, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:912
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    References listed on IDEAS

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    Cited by:

    1. Jean-François Mertens & Anna Rubinchik, 2017. "Discounting and welfare evaluation of policies," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 19(5), pages 903-920, October.

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    More about this item

    Keywords

    Ramsey taxation ; second-best ; production e ciency ; general equilibrium ; private ownership ; di erential topology ; transversality theorem.;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General

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