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Redistribution and Internalization: The Many-Person Ramsey Tax Rule Revisited

Author

Listed:
  • Jukka Pirttilä

    (Bank of Finland)

  • Ronnie SchöB

    (University of Munich)

Abstract
This article studies the trade-off between efficiency and equity objectives within a model of commodity taxation. It derives two formulations for a many-person Ramsey tax rule in the presence of externalities. The first tax rule reveals that the aggregate compensated decrease in the demand for a taxed good should be the larger (i) the more luxurious the good and (ii) the stronger the taxed and the polluting goods complement each other. The second tax rule shows that the standard many-person Ramsey rule holds for the nonenvironmental part of a commodity tax, provided that the consumption of the polluting good is already subject to a second-best optimal internalization tax.

Suggested Citation

  • Jukka Pirttilä & Ronnie SchöB, 1999. "Redistribution and Internalization: The Many-Person Ramsey Tax Rule Revisited," Public Finance Review, , vol. 27(5), pages 541-560, September.
    • Handle: RePEc:sae:pubfin:v:27:y:1999:i:5:p:541-560
    DOI: 10.1177/109114219902700505
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    References listed on IDEAS

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    Cited by:

    1. Ronnie Schöb, 2003. "The Double Dividend Hypothesis of Environmental Taxes: A Survey," CESifo Working Paper Series 946, CESifo.
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