Our analysis has shown that the allocative branch and the income distribution branch, to use Musgrave's terminology, in conjunction determine a Pareto optimum. It was shown that an insistence on conform solutions with tax prices equal to marginal rates of substitution, will guide us to the proper initial income distribution. The optimum can be found directly. However, in a setting in which all preferences are known and allocations are made according to the market principle, not much is gained by introducing the concept of income before-tax and tax prices. No new insights for the conduct of fiscal policy can be derived from this. We obtain an elegant general solution. In this case the distinction between an Allocation Branch and an Income Distribution Branch becomes blurred, because both branches simultaneously affect allocation and distribution. Another and more realistic possibility is to think of the economy as a computer which finds an optimum in a number of steps. We start out with a given income distribution and some system of tax prices. For the pricing rule to be chosen three criteria should be used, (1) it should induce preference revelation for public goods, (2) it should be effective with respect to adjustments in distribution and (3) it should be possible to approximate it through the political process. The income should be adjusted in line with such a pricing rule. In this process a case can be made for conceptually different branches. To have or not to have a division between the allocation branch and the income distribution branch thus depends on how one believes an economy grinds out an optimal solution. If we assume that all adjustments are simultaneous, smooth and in the right directions, we get a direct solution in an elegant grand manner. In it there is little room for distinct branches. Yet, it is more realistic perhaps to think of the way towards an optimum as a series of consecutive adjustments in distinct allocation and distribution branches. Many of the adjustments are cumbersome, involving trial and error as well as feedback and learning and, to this extent, reflecting the true nature of fiscal decisions.

Monetary economics: readings on current issues , Monetary economics: readings on current issues , کتابخانه دانشگاه امام صادق(ع)