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Production efficiency and profit taxation

Author

Listed:
  • Stéphane Gauthier

    (University of Paris 1
    Institute for Fiscal Studies)

  • Guy Laroque

    (Institute for Fiscal Studies
    University College London)

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 $$100\%$$ 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.

Suggested Citation

  • Stéphane Gauthier & Guy Laroque, 2019. "Production efficiency and profit taxation," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 52(2), pages 215-223, February.
  • Handle: RePEc:spr:sochwe:v:52:y:2019:i:2:d:10.1007_s00355-018-1144-2
    DOI: 10.1007/s00355-018-1144-2
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    References listed on IDEAS

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