Constraints on income distribution and production efficiency in economies with Ramsey Taxation
Blackorby, Charles 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|Status:||Not Peer Reviewed|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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