Advertisement

Social Choice and Welfare

, Volume 52, Issue 2, pp 215–223 | Cite as

Production efficiency and profit taxation

  • Stéphane GauthierEmail author
  • Guy Laroque
Original Paper
  • 61 Downloads

Abstract

Consider a simple general equilibrium economy with one representative consumer, a single competitive firm and the government. Suppose that the government has to finance public expenditures using linear consumption taxes and/or a lump-sum tax on profits redistributed to the consumer. We show that, if the tax rate on profits cannot exceed \(100\%\), one cannot improve upon the second-best optimum of an economy with constant returns to scale by using a less efficient profit-generating decreasing returns to scale technology.

References

  1. Best M, Brockmeyer A, Kleven H, Spinnewijn J, Waseem M (2015) Production versus revenue efficiency with limited tax capacity: theory and evidence from Pakistan. J Polit Econ 123:1311–1355CrossRefGoogle Scholar
  2. Blackorby C, Brett C (2004) Production efficiency and the direct–indirect tax mix. J Pub Econ Theory 6(1):165–180CrossRefGoogle Scholar
  3. Blackorby C, Murty S (2009) Constraints on income distribution and production efficiency in economies with Ramsey taxation, Discussion paper, University of WarwickGoogle Scholar
  4. Dasgupta P, Stiglitz J (1972) On optimal taxation and public production. Rev Econ Stud 39(1):87–103CrossRefGoogle Scholar
  5. Diamond P, Mirrlees J (1971) Optimal taxation and public production. Am Econ Rev 61(1):8–27Google Scholar
  6. Gomes R, Lozachmeur J-M, Pavan A (2018) Differential taxation and occupational choice. Rev Econ Studies 85:511–557CrossRefGoogle Scholar
  7. Hahn F (1973) On optimum taxation. J Econ Theory 6:96–106CrossRefGoogle Scholar
  8. Mirrlees J (1972) On producer taxation. Rev Econ Stud 39(1):105–111CrossRefGoogle Scholar
  9. Munk K (1978) Optimal taxation and pure profit. Scand J Econ 80(1):1–19CrossRefGoogle Scholar
  10. Murty S (2013) Production efficiency and constraints on profit taxation and profit distribution in economies with Ramsey taxation. Soc Choice Welf 41:579–604CrossRefGoogle Scholar
  11. Naito H (1999) Re-examination of uniform commodity taxes under a non-linear income tax system and its implication for production efficiency. J Pub Econ 71:165–188CrossRefGoogle Scholar
  12. Reinhorn L (2013) Production efficiency and excess supply. Math Soc Sci 65:92–100CrossRefGoogle Scholar
  13. Sadka E (1977) A note on producer taxation and public production. Rev Econ Stud 44(2):385–387CrossRefGoogle Scholar
  14. Saez E (2004) Direct or indirect tax Instruments for redistribution: short-run versus long-run. J Pub Econ 38(2):503–518CrossRefGoogle Scholar
  15. Stiglitz J, Dasgupta P (1971) Differential taxation, public goods, and economic efficiency. Rev Econ Stud 38(2):151–174CrossRefGoogle Scholar
  16. Wilson J (1982) The optimal public employment policy. J Pub Econ 17:241–258CrossRefGoogle Scholar

Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  1. 1.PSEUniversity of Paris 1ParisFrance
  2. 2.Sciences-PoInstitute for Fiscal StudiesLondonUK
  3. 3.University College LondonLondonUK

Personalised recommendations