Ramsey, Pigou, Heterogenous Agents, and Non-Atmospheric Consumption Externalities

31 Pages Posted: 25 Nov 2011

See all articles by Ronald Wendner

Ronald Wendner

University of Graz - Department of Economics

Date Written: November 25, 2011

Abstract

This paper analyzes the effects of non-atmospheric consumption externalities on optimal commodity taxation and on the social cost and optimal levels of public good provision. A negative consumption externality, by lowering the social cost of public good provision, may require the second-best level of public good provision to exceed the first-best level. If those households who are most important for building up the consumption reference level respond the least to commodity taxation, heterogeneity may imply an equity-efficiency tradeoff. This tradeoff is present only if the consumption externality is of the non-atmospheric type.

Keywords: consumption externality, optimal commodity taxation, Pigou, public good provision, Ramsey rule

JEL Classification: D62, H21, H41

Suggested Citation

Wendner, Ronald, Ramsey, Pigou, Heterogenous Agents, and Non-Atmospheric Consumption Externalities (November 25, 2011). Available at SSRN: https://ssrn.com/abstract=1964756 or http://dx.doi.org/10.2139/ssrn.1964756

Ronald Wendner (Contact Author)

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HOME PAGE: http://homepage.uni-graz.at/de/ronald.wendner/

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