Policy analysis in applied fields such as agricultural, trade, environmental and development policy is still often undertaken within a first-best, rather than a more realistic second-best framework. The present paper seeks to contribute to changing this state of affairs by providing an intuitive...

The paper provides an intuitive explanation - seen from an efficiency point of view - of the optimal commodity tax structure as the result of a trade-off between two objectives: 1) the objective of maintaining the first-best pattern of consumption of produced commodities, and 2) the objective of...

With reference to the size of the informal sector, Stiglitz (2003) argues that border taxes are superior to VAT in certain developing countries. By way of a quantitative example this paper shows that, while Stiglitz’ claim is probably will turn out to be correct, a large informal sector is not...

The paper extends the standard second best theory of optimal taxation to take into account the existence of differences in administrative costs associated with different tax-transfer systems providing a more realistic framework for the analysis of the trade-offs between equity and efficiency...

As is broadly recognized, the straightforward application of the Diamond-Mirrlees (1971) production efficiency theorem implies that when lump-sum taxation is not available, then it is optimal for the government in a small open economy to rely on taxes on the net demand of households rather than...

The view of economists seems in general to be that a green tax reform is unlikely to be associated with a "double dividend", especially if the policies prior to the reform have been economically rational. However, the results derived in the present paper suggest that this view needs to be...

The paper provides an intuitive explanation – seen from an efficiency point of view – of the optimal commodity tax structure as the result of a trade-off between two objectives: 1) the objective of maintaining the first-best pattern of consumption of produced commodities, and 2) the...

The adoption of proper rules of normalisation is in general considered a trivial problem which deserves little attention. Possibly for that very reason errors in normalisation have resulted in flawed interpretations of the conditions for optimal commodity taxation. We state based on an explicit...

Dixit’s 1975 paper "Welfare Effects of Tax and Price Changes" constitutes a seminal contribution to the theory of tax reform analysis within a second-best general equilibrium framework. The present paper clarifies ambiguities with respect to normalisation which have led to misinterpretation of...