Redistribution, Production Inefficiency and Decentralized Efficiency
AbstractThis 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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Bibliographic InfoPaper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0594.
Date of creation: Sep 2003
Date of revision:
Other versions of this item:
- Hisahiro Naito, 2006. "Redistribution, production inefficiency and decentralized efficiency," International Tax and Public Finance, Springer, vol. 13(5), pages 625-640, September.
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