Constraints on Income Distribution and Production Efficiency In Economies with Ramsey Taxation

We study the link between second-best production efficiency and the constraints on income distribution imposed by private ownership of firms in economies with Ramsey taxation. We review the result of Dasgupta and Stiglitz [1972], Mirrlees [1972], Hahn [1973], and Sadka [1977] about firm-specific profit taxation leading to second-best production effi- ciency. Problems in the proofs of this result in these papers have been identified by Reinhorn [2005]. We provide an alternative, and with some hope a more intuitive, proof of this result. The mechanism employed in our proof is also used to show second-best production efficiency under some configuarations of private ownership without any (or at best, uniform) profit taxation. The results obtained raise questions about the genericity of the phenomenon of second-best production inefficiency and about recovering social shadow prices in such economies.


Issue Date:
2009-05
Publication Type:
Working or Discussion Paper
Record Identifier:
http://ageconsearch.umn.edu/record/271292
Language:
English
Total Pages:
30
JEL Codes:
H21
Series Statement:
WERP 908




 Record created 2018-04-12, last modified 2018-04-12

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