Pareto improving taxes with externalities
Résumé
We consider a pure exchange economy with consumption externalities in preferences. We study commodity taxes and lump-sum transfers schemes, which lead to equilibrium allocations where all individuals are strictly better off. We extend the result of Geanakoplos and Polemarchakis (2008) on the generic existence of Pareto improving policies with uniform taxes and equal transfers to general non-separable preferences, when the number of individuals is strictly smaller than the number of commodities. We also overcome this limitation by considering either uniform taxes with personalized lump-sum transfers, or personalized taxes with uniform lump-sum transfers. As in Geanakoplos and Polemarchakis (2008), we mainly use utility perturbations but we also provide a sufficient condition for ensuring the existence of Pareto improving policies without perturbing utilities.
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