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Macroeconomic Externalities: Are Pigovian Taxes the Answer?
Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
Department of Economics, Uppsala University.
1991 (English)Report (Other academic)
Abstract [en]

Basic welfare economics tells us that many types of externalities can be remedied by proper use of corrective taxes and subsidies. This paper shows that this notion also extends to the macroeconomic externalities discussed in recent Keynesian literature on nominal price rigidities. The derived policy rules are lindred in spirit to standard Keynesian policy prescriptions: Progressive income taxes may serve a useful role in combating wasteful economic fluctuations. However, unlike older fix-price models of automatic stabilizers, progressive taxes work in our monopolistic economy because they directly affect the pricing mechanism.

Place, publisher, year, edition, pages
Stockholm: IIES , 1991. , 23 p.
Seminar Paper / Institute for International Economic Studies, Stockholm University, ISSN 0347-8769 ; 487
National Category
URN: urn:nbn:se:su:diva-41793OAI: diva2:337763
Available from: 2010-08-09 Created: 2010-08-09 Last updated: 2010-08-09Bibliographically approved

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