Readings in Welfare Economics pp 240-252 | Cite as
The Social Optimum in the Presence of Monopoly and Taxation
Abstract
If the ratios of price to marginal cost in certain industries are given, what can be said about the optimal ratios of price to marginal cost in other industries? It is to this problem that the present paper is addressed. It is related to certain recent contributions in this field as follows: (a) it differs from the discussions of direct and indirect taxation by Meade and by Corlett and Hague (references [1] and [8] pp. 24–33) in that the total amount of revenue from taxes on commodities and labour incomes is not taken as given; the government is assumed free to balance changes in revenue from these sources by changes in transfer payments and in lump-sum taxes in its search for an optimum; (b) it differs from the treatment by Lipsey and Lancaster [5] in that a “budget” constraint is explicitly introduced into the analysis; (c) the model here used is very similar to that which underlies McManus’s geometrical treatment of the three-commodity case ([7], pp. 213–19[201–7]; cf. also [5], pp. 18–20[151–3]).
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