Efficient commodity taxation

Abstract

Necessary and sufficient conditions for a set of commodity taxes to be Pareto efficient are derived. Unlike the literature on optimal taxation these conditions are derived without reference to a social welfare function. One of the necessary conditions derived by a revealed preference argument is particularly useful. It is shown to yield the Ramsey rule for single-person economies and some alternative rules for many-person economies. These rules have the desirable feature that they depend only upon the properties of the aggregate household demand functions and aggregate technology. © 1979.