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[Strategic considerations may induce a resource importing country to invent a substitute earlier than it intends to put it to use. There are also circumstances in which it would wish to delay an invention date even if it could obtain it at an earlier date at no extra cost. Similar paradoxical results obtain if resource cartels behave strategically. Setting prices high may be a way of deterring invention. If those engaged in R & D are not resource users, and the cartel has access to similar R & D technology, it will pre-empt rivals. This may not be the case if resource users can also engage in R & D.]

In this paper we are concerned with the following question: in any economy with several public goods, what are the conditions under which the conventional optimality rule of equality between the sum of marginal rates of substitution and the marginal rate of transformation still holds even in the presence of distortionary taxation?Two cases are considered.In the first case, the taxes may be arbitrary.In the second case, the taxes are optimally chosen.