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Redistribution, Production Inefficiency and Decentralized Efficiency

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  • Hisahiro Naito

Abstract

This paper analyzes the role of production distortion for income redistribution in an international trade model. In particular, this paper examines the role of the Stolper and Samuelson effect (Stolper and Samuelson 1941) on efficient income redistribution. It first shows that production inefficiency can be a part of a Pareto-efficient tax system when there is an asymmetric information problem between the government and individuals. Second, by using the technique that Diamond and Mirrlees (1971) originally developed, this paper shows that such production inefficiency is not only Pareto-improving for a small country but also essential to achieve world-wide Pareto-efficient allocation. Those two results suggest important policy implications for commercial policies.

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Paper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0594.

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Date of creation: Sep 2003
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Handle: RePEc:dpr:wpaper:0594

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  1. Dixit, Avinash, 1985. "Tax policy in open economies," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 6, pages 313-374 Elsevier.
  2. V.V. Chari & Patrick J. Kehoe, 1989. "International coordination of fiscal policy in limiting economies," Staff Report 121, Federal Reserve Bank of Minneapolis.
  3. Assaf Razin & Joel Slemrod, 1990. "Taxation in the Global Economy," NBER Books, National Bureau of Economic Research, Inc, number razi90-1, May.
  4. Hisahiro Naito, 2003. "Endogenous Human Capital Accumulation, Comparative Advantage and Direct vs. Indirect Redistribution," ISER Discussion Paper 0590, Institute of Social and Economic Research, Osaka University.
  5. David Spector, 1999. "Is it Possible to Redistribute the Gains from Trade Using Income Taxation?," Working papers 99-13, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 333-350, November.
  7. Guesnerie, Roger, 2001. " Second Best Redistributive Policies: The Case of International Trade," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 3(1), pages 15-25.
  8. Naito, Hisahiro, 1999. "Re-examination of uniform commodity taxes under a non-linear income tax system and its implication for production efficiency," Journal of Public Economics, Elsevier, vol. 71(2), pages 165-188, February.
  9. Stiglitz, Joseph E., 1982. "Self-selection and Pareto efficient taxation," Journal of Public Economics, Elsevier, vol. 17(2), pages 213-240, March.
  10. Gordon, R.H. & Levisohn, J., 1989. "The Linkage Between Domestic Taxes And Borber Taxes," Working Papers 244, Research Seminar in International Economics, University of Michigan.
  11. Dixit, Avinash & Norman, Victor, 1986. "Gains from trade without lump-sum compensation," Journal of International Economics, Elsevier, vol. 21(1-2), pages 111-122, August.
  12. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
  13. Huber, Bernd, 1999. "Tax competition and tax coordination in an optimum income tax model," Journal of Public Economics, Elsevier, vol. 71(3), pages 441-458, March.
  14. Dasgupta, Partha & Stiglitz, Joseph E, 1972. "On Optimal Taxation and Public Production," Review of Economic Studies, Wiley Blackwell, vol. 39(1), pages 87-103, January.
  15. Huber, Bernd, 1999. "Tax competition and tax coordination in an optimum income tax model," Munich Reprints in Economics 19402, University of Munich, Department of Economics.
  16. Rodrik, Dani, 1995. "Political economy of trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 28, pages 1457-1494 Elsevier.
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