A Correction to: "The Structure of General Equilibrium Shadow Pricing Rules for a Tax-Distorted Economy"

Abstract

This paper makes a correction to the way the marginal social cost of public funds (MCF) is used in Sieper (1981) to obtain uncompensated shadow prices when transfers are made with distorting taxes. We derive a shadow value of government revenue to measure the change in utility from endowing an extra dollar of revenue on the government who transfers it to consumers. This, rather than the “conventional” Harberger” measure of the MCF, converts the compensated shadow price of any good into its uncompensated shadow price. We use it to prove that Ramsey optimal taxes, which minimize the compensated tax inefficiency for a given revenue requirement, have equal uncompensated marginal excess burdens per dollar change in government revenue. Show more