Redistribution and internalization: The many-person Ramsey tax rule revisited

This article studies the trade-off between efficiency and equity objectives within a model of commodity taxation. It derives two formulations for a ma ny-person Ramsey tax rule in the presence of externalities. The first tax r ule reveals that the aggregate compensated decrease in the demand for a tax ed good should be the larger (i,) the more luxurious the good and (ii) the stronger the tared and the polluting goods complement each other. The secon d tar rule shows that the standard many-person Ramsey rule holds for the no nenvironmental part of a commodity tar provided that the consumption of the polluting good is already subject to a second-best optimal internalization tax.