<p>Is there a good reference on taxation theory in a general equilibrium framework?</p>
<p>I am especially interested in the following questions.</p>
<ol>
<li>Is the equilibrium independent of who pays the taxes?</li>
<li>Is the Pigouvian tax still valid? What is the social marginal cost in this framework?</li>
<li>What kind of models can we utilize to answer these questions?</li>
</ol>
<hr />
<p><strong>Edit1:</strong> The first question was quite obvious for excise taxes. Assume that there exists an equilibrium with taxes. Then, by fixing the prices the consumers and firms face, we can freely interpret who is paying the taxes.</p>
<p><strong>Edit2:</strong> The following is the model I have in mind.</p>
<p>There are <span class="math-container">$H$</span> households (<span class="math-container">$h=1,\dots,H$</span>) and <span class="math-container">$F$</span> firms (<span class="math-container">$f=1,\dots,F$</span>). There are <span class="math-container">$L$</span> commodities (<span class="math-container">$l=1,\dots,L$</span>). Let <span class="math-container">$x_l^h$</span> denote the consumption of commodity <span class="math-container">$l$</span> by household <span class="math-container">$h$</span>, and <span class="math-container">$q_l^f$</span> denote the output of commodity <span class="math-container">$l$</span> by firm <span class="math-container">$f$</span> (input if it is negative). Household <span class="math-container">$h$</span> maximizes <span class="math-container">$u^h(x^h,e)$</span>, where <span class="math-container">$e$</span> is the total emission by the firms. Firm <span class="math-container">$f$</span> maximizes the profit subject to <span class="math-container">$F^f(q^f,-e^f) \le 0$</span>.</p>
<p>Pareto efficiency can be restored by carefully designing emission taxes for firms. However, I am struggling to show if there is an equivalent tax scheme where consumers pay the tax.</p>

CC BY-SA 4.0
2024-06-02T09:18:52.570Z
You can try the handbook of public economics - probably a good place to start.
Jesper Hybel
CC BY-SA 4.0
2024-06-02T09:56:48.420Z
Thank you for the suggestion. It seems that the chapters titled "Tax incidence" are the most relevant, especially for question no. 1. I was expecting a more general treatment of the topic, like N households, M firms with arbitrary production technologies, etc, but the existing literature does not seem to be something like that?
kenji
CC BY-SA 4.0
2024-06-02T10:04:12.160Z
The literature is huge. The whole Computable General Equilibrium literature is relevant. Harbergers two sector model results are early work in general equilibrium and taxation. But you also need some externality I suppose and then you need to make clear if the economy is open or closed and whether the externality is national or global - I think ... but I'm not expert on applied GE literature.
Jesper Hybel
CC BY-SA 4.0
2024-06-02T10:17:02.793Z
Thank you for the clarification. I will check CGE or applied GE literature.
kenji
<taxation><general-equilibrium><pigouvian-taxes>
Taxation in a general equilibrium framework
kenji
# Taxation in a general equilibrium framework

(Asked by: username_0 on 2024-06-02)

Is there a good reference on taxation theory in a general equilibrium framework?

I am especially interested in the following questions.

1. Is the equilibrium independent of who pays the taxes?
2. Is the Pigouvian tax still valid? What is the social marginal cost in this framework?
3. What kind of models can we utilize to answer these questions?

---

**Edit1:** The first question was quite obvious for excise taxes. Assume that there exists an equilibrium with taxes. Then, by fixing the prices the consumers and firms face, we can freely interpret who is paying the taxes.

**Edit2:** The following is the model I have in mind.

There are $H$ households ($h=1,\dots,H$) and $F$ firms ($f=1,\dots,F$). There are $L$ commodities ($l=1,\dots,L$). Let $x\_l^h$ denote the consumption of commodity $l$ by household $h$, and $q\_l^f$ denote the output of commodity $l$ by firm $f$ (input if it is negative). Household $h$ maximizes $u^h(x^h,e)$, where $e$ is the total emission by the firms. Firm $f$ maximizes the profit subject to $F^f(q^f,-e^f) \le 0$.

Pareto efficiency can be restored by carefully designing emission taxes for firms. However, I am struggling to show if there is an equivalent tax scheme where consumers pay the tax.

**Tags:** taxation, general-equilibrium, pigouvian-taxes

> **Comments:**
> **username_1**: You can try the handbook of public economics - probably a good place to start.  
> **username_0**: Thank you for the suggestion. It seems that the chapters titled "Tax incidence" are the most relevant, especially for question no. 1. I was expecting a more general treatment of the topic, like N households, M firms with arbitrary production technologies, etc, but the existing literature does not seem to be something like that?  
> **username_1**: The literature is huge. The whole Computable General Equilibrium literature is relevant. Harbergers two sector model results are early work in general equilibrium and taxation. But you also need some externality I suppose and then you need to make clear if the economy is open or closed and whether the externality is national or global - I think ... but I'm not expert on applied GE literature.  
> **username_0**: Thank you for the clarification. I will check CGE or applied GE literature.  

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## 0 answers

