A One-Consumer Economy With General Technology
Deadweight Loss From Taxation
Replacing the assumption of linear technology with the more realistic assumption of general technology affects the analysis of tax loss in two ways. The most direct implication is that production terms enter into the loss function in a nontrivial manner. In addition, general technology explicitly reintroduces market clearance into the analysis because the full set of market clearance equations is necessary to determine the relationship between producer and consumer prices. Each point deserves careful attention.
Pure Profits and Losses
With linear technology, the loss resulting from a vector of commodity taxes is defined as the lump-sum income necessary to ...
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