This paper restores many of the Ramsey tax/pricing lessons perceived as outdated in the optimal tax literature following the Atkinson and Stiglitz (J Public Econ 6:55–75, 1976) framework wherein differential commodity taxes are considered to be redundant. The key to our findings is the incorporation of a “break-even constraint” for public firms into the Atkinson and Stiglitz framework. Break-even constraints are fundamental to the regulatory pricing literature but have somehow been overlooked in the optimal tax literature. Incorporating them reconciles the optimal-tax and the regulatory-pricing views on Ramsey tax/pricing rules.
Helmuth Cremer, and Firouz Gahvari, “Restoring Ramsey tax lessons to Mirrleesian tax settings: Atkinson-Stiglitz and Ramsey reconciled"”, Social Choice and Welfare, vol. 49, June 2017, pp. 11–35.