Elsevier

Journal of Public Economics

Volume 25, Issue 3, December 1984, Pages 259-298
Journal of Public Economics

The theory of reform and indian indirect taxes

https://doi.org/10.1016/0047-2727(84)90057-4Get rights and content

Abstract

Given a set of value judgements, an initial state, and a model of the economy, one can ask whether some feasible tax change would increase welfare. We do this by defining the marginal cost in terms of welfare of raising an extra rupee from the ith good. The inverse optimum problem is the calculation of non-negative welfare weights on households which imply that the initial state is optimum. If no such welfare weights exist, then a Pareto improvement is possible. We illustrate the concepts and results using data from the Indian economy for 1979–1980. Directions of tax reform for a number of specific social welfare functions and for Pareto improvements are presented.

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