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Production efficiency and excess supply

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  • Leslie J. Reinhorn

    ()
    (Durham Business School)

Abstract

This paper demonstrates that intermediate goods should not be taxed even in the presence of dividend payments to households, thus clarifying previous results. We also find that optimal government policy in a second best world may include stockpiles of output - private supply exceeds private demand, and the government purchases the surplus. This may provide a possible explanation for some agricultural policies.

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Bibliographic Info

Paper provided by Durham University Business School in its series Working Papers with number 2011_13.

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Date of creation: 01 Nov 2011
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Handle: RePEc:dur:durham:2011_13

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Postal: Durham University Business School, Mill Hill Lane, Durham DH1 3LB, England
Phone: +44 (0)191 334 5200
Fax: +44 (0)191 334 5201
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Web page: http://www.dur.ac.uk/business
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Keywords: production efficiency; excess supply; optimal taxation; non-tight equilibrium; price supports;

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References

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  1. Hahn, Frank H., 1973. "On optimum taxation," Journal of Economic Theory, Elsevier, vol. 6(1), pages 96-106, February.
  2. Weymark, John A, 1981. "On Sums of Production Set Frontiers," Review of Economic Studies, Wiley Blackwell, vol. 48(1), pages 179-83, January.
  3. Weymark, John A., 1979. "A reconciliation of recent results in optimal taxation theory," Journal of Public Economics, Elsevier, vol. 12(2), pages 171-189, October.
  4. Sadka, Efraim, 1977. "A Note on Producer Taxation and Public Production," Review of Economic Studies, Wiley Blackwell, vol. 44(2), pages 385-87, June.
  5. Besley, Timothy J. & Persson, Torsten, 2007. "The Origins of State Capacity: Property Rights, Taxation, and Politics," CEPR Discussion Papers 6370, C.E.P.R. Discussion Papers.
  6. Diewert, W E & Turunen-Red, A H & Woodland, A D, 1989. "Productivity- and Pareto-Improving Changes in Taxes and Tariffs," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 199-215, April.
  7. Reinhorn, Leslie J., 2007. "Butter mountains and wine lakes," Economics Letters, Elsevier, vol. 94(2), pages 197-201, February.
  8. Berliant, Marcus & Page, Frank H, Jr, 2001. "Income Taxes and the Provision of Public Goods: Existence of an Optimum," Econometrica, Econometric Society, vol. 69(3), pages 771-84, May.
  9. Hammond, Peter J & Sempere, Jaime, 1995. "Limits to the Potential Gains from Economic Integration and Other Supply Side Policies," Economic Journal, Royal Economic Society, vol. 105(432), pages 1180-1204, September.
  10. Guesnerie,Roger, 1998. "A Contribution to the Pure Theory of Taxation," Cambridge Books, Cambridge University Press, number 9780521629560, April.
  11. Sushama Murty, 2010. "Constraints on profit income distribution and production efficiency in private ownership economies with Ramsey taxation," Discussion Papers 1010, Exeter University, Department of Economics.
  12. Dixit, Avinash, 1987. "On Pareto-improving redistributions of aggregate economic gains," Journal of Economic Theory, Elsevier, vol. 41(1), pages 133-153, February.
  13. Michael Keen & David Wildasin, 2004. "Pareto-Efficient International Taxation," American Economic Review, American Economic Association, vol. 94(1), pages 259-275, March.
  14. Guesnerie, Roger, 1977. "On the direction of tax reform," Journal of Public Economics, Elsevier, vol. 7(2), pages 179-202, April.
  15. Mirrlees, James A, 1972. "On Producer Taxation," Review of Economic Studies, Wiley Blackwell, vol. 39(1), pages 105-11, January.
  16. 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.
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Cited by:
  1. Sushama Murty, 2013. "Production efficiency and constraints on profit taxation and profit distribution in economies with Ramsey taxation," Social Choice and Welfare, Springer, vol. 41(3), pages 579-604, September.
  2. Murty, Sushama, 2009. "Topology of utility possibility frontiers of economies with Ramsey taxation," The Warwick Economics Research Paper Series (TWERPS) 912, University of Warwick, Department of Economics.
  3. Sushama Murty, 2010. "Constraints on profit income distribution and production efficiency in private ownership economies with Ramsey taxation," Discussion Papers 1010, Exeter University, Department of Economics.

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