A Contribution to the Pure Theory of Taxation.

• Author: Snow, Sandra L.

Currently serving as Directeur de Recherches at the Centre National de la Recherche Scientifigue and Directeur d'Etudes at the Ecole des Hautes Etudes in Sciences Sociales in Paris, French economist Roger Guesnerie adds this Econometric Society monograph to his quite substantial list of existing scholarly publications. Although his stated objective is to provide an analytical framework, familiar techniques, and interesting results concerning tax theory to public economists, the technical level of this treatise limits the potential market to a few Ph.D.'s with a current, state-of-the-art research interest in the theory of taxation. In fact, sections and subsections are labeled with a number of asterisks according to the level of technical difficulty and the mathematical appendix will be comprehensible only to a topologist.

In general, basic premises of this volume include the theories of second-best and incomplete markets as applied to optimal taxation theory, with specific emphasis on the academic contributions of P. Hammond, P. Diamond-J. Mirrlees, and J. Greenberg-S. Weber since 1971. Organizationally the fundamental, theoretical Diamond-Mirrlees model is examined analytically with respect to institutional status in chapter 1, "positive" aspects in chapter 2, "normative" implications in chapter 3, the problem of the relationship between social values and prices in chapter 4, and the structure of second-best Pareto optima as well as game-theoretic inferences in chapter 5. In particular, the institutional analysis of Chapter 1 relies on three significant polar assumptions namely:

1. individual characteristics are private rather than public knowledge;

2. no asymmetric information between the government and the production sector exist; and

3. transactions between the production and consumption sectors are costlessly observed.

In essence, this chapter provides one possible justification of the taxation model to be presented in chapters 2 and 3 in which commodity and factor taxes introduce wedges between production and consumption prices. To be specific, given the above assumptions, this model does not distort choices and create inefficiencies only if lump-sum transfers are unavailable and commodity taxes are the correct substitutes for the lump-sum taxes. Based on Guesnerie's 1981 unpublished material, the analytical framework consists of a central planner with full control of the production sector of an economy, but faced with informational...