Chapter 2

A General Equilibrium Model for Public Sector Analysis

Abstract

Chapter 2 develops a baseline analytical model of an economy, variations of which have been used for almost all mainstream public sector analysis. The objective of the mainstream model is to maximize a Bergson-Samuelson social welfare function. The chapter develops the two sets of necessary conditions for a social welfare maximum, the pareto-optimal conditions, and the interpersonal equity conditions.

Keywords

Bergson–Samuelson social welfare function; Bliss point; Interpersonal equity conditions; Lump-sum redistributions; Marginal social welfare weight; Pareto-optimal conditions; Social marginal utility of income; Social welfare indifference curve

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