Consumption externality, efficiency and optimal taxation in one-sector growth model

Been Lon Chen, Mei Hsu

研究成果: 雜誌貢獻期刊論文同行評審

2 引文 斯高帕斯(Scopus)


In an economy with consumption externalities, existing studies find that a competitive equilibrium is efficient in the long run and remains efficient in transitions if preferences are homothetic. This paper revisits the efficiency issue in an otherwise standard one-sector growth model where consumption externalities affect a utility via their effects on the time preference. We find that even if preferences are homothetic, the externality changes the marginal rate of substitution between now and future and leads to a disparity in the intertemporal elasticity of substitution between the centrally planned economy and a decentralized economy. As a result, a competitive equilibrium is inefficient in transition dynamics. We characterize an optimal tax/subsidy structure that enables the allocation in a decentralized economy to replicate the social optimum.

頁(從 - 到)1328-1334
期刊Economic Modelling
出版狀態已發佈 - 2009 十一月 1

ASJC Scopus subject areas

  • Economics and Econometrics

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