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Income Taxation, Endogenous Factor Prices and Production Efficiency

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  • Thomas Gaube

Abstract

In an analysis of a two‐type income tax model with endogenous wages, this paper shows that production efficiency is violated in the optimum with (i) non‐linear and (ii) linear income taxation if and only if a distortionary tax schedule is implemented. These findings complement earlier results of the literature. In passing, it is also shown that optima with non‐linear redistributive income taxation cannot be identified with the redistributive regime if the assumption of endogenous wages is taken seriously.

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  • Thomas Gaube, 2005. "Income Taxation, Endogenous Factor Prices and Production Efficiency," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(2), pages 335-352, June.
    • Handle: RePEc:bla:scandj:v:107:y:2005:i:2:p:335-352
    DOI: 10.1111/j.1467-9442.2005.00411.x
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    Cited by:

    1. Firouz Gahvari, 2014. "Second-Best Pigouvian Taxation: A Clarification," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 59(4), pages 525-535, December.
    2. Keuschnigg, Christian & Ribi, Evelyn, 2009. "Outsourcing, unemployment and welfare policy," Journal of International Economics, Elsevier, vol. 78(1), pages 168-176, June.
    3. Sebastian G. Kessing & Chiara Strozzi, 2017. "The regional distribution of public employment: theory and evidence," Regional Studies, Taylor & Francis Journals, vol. 51(7), pages 1100-1114, July.
    4. Michael Lundholm & Hans Wijkander, 2008. "Why Do Scandinavian Governments Employ So Many and the United States Government So Few?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 64(3), pages 364-379, September.
    5. Hisahiro Naito, 2016. "Optimal Shadow Prices for the Public Sector in the Presence of a Non-linear Income Tax System in an Open Economy," Tsukuba Economics Working Papers 2016-003, Faculty of Humanities and Social Sciences, University of Tsukuba.
    6. Spencer Bastani & Firouz Gahvari & Luca Micheletto, 2022. "Nonlinear Taxation of Income and Education in the Presence of Income-Misreporting," CESifo Working Paper Series 9987, CESifo.
    7. Firouz Gahvari, 2014. "Second-Best Taxation of Incomes and Non-Labor Inputs in a Model with Endogenous Wages," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 16(6), pages 917-935, December.
    8. Firouz Gahvari & Luca Micheletto, 2020. "Wage endogeneity, tax evasion, and optimal nonlinear income taxation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(3), pages 501-531, June.
    9. Shigeo Morita & Takuya Obara, 2021. "Public investment criteria under optimal nonlinear income taxation without commitment," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(4), pages 732-745, August.

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