Constraints on income distribution and production efficiency in economies with Ramsey Taxation
Blackorby, Charles, 1937- and Murty, Sushama (2009) Constraints on income distribution and production efficiency in economies with Ramsey Taxation. Working Paper. Coventry: University of Warwick, Department of Economics. Warwick economic research papers (No.908).
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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 , Mirrlees , Hahn , and Sadka  about firm-specific profit taxation leading to second-best production efficiency. Problems in the proofs of this result in these papers have been identified by Reinhorn . 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.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HJ Public Finance|
|Divisions:||Faculty of Social Sciences > Economics|
|Library of Congress Subject Headings (LCSH):||Taxation -- Econometric models, Production (Economic theory), Equilibrium (Economics), Right of property|
|Series Name:||Warwick economic research papers|
|Publisher:||University of Warwick, Department of Economics|
|Place of Publication:||Coventry|
|Official Date:||15 May 2009|
|Number of Pages:||30|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
Dasgupta, P. and J. Stiglitz, \On Optimal Taxation and Public Production" The Review
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