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Redistribution, production inefficiency and decentralized efficiency

  • Hisahiro Naito


This paper analyzes the role of production distortion in income redistribution in an international trade model. In particular, it examines the role of the Stolper and Samuelson effect on efficient income redistribution. It first shows that production inefficiency can be part of a Pareto-efficient tax system for a small country when there is an asymmetric information problem between the government and individuals. Second, the paper shows that such production inefficiency is not only Pareto-improving for a small country, but is also essential in achieving worldwide tax-constrained Pareto-efficient allocation. These two results suggest important implications for commercial policies. Copyright Springer Science + Business Media, LLC 2006

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Article provided by Springer & International Institute of Public Finance in its journal International Tax and Public Finance.

Volume (Year): 13 (2006)
Issue (Month): 5 (September)
Pages: 625-640

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Handle: RePEc:kap:itaxpf:v:13:y:2006:i:5:p:625-640
DOI: 10.1007/s10797-006-6551-0
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  1. 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.
  2. 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.
  3. Joseph E. Stiglitz, 1981. "Self-Selection and Pareto Efficient Taxation," NBER Working Papers 0632, National Bureau of Economic Research, Inc.
  4. Assaf Razin & Joel Slemrod, 1990. "Taxation in the Global Economy," NBER Books, National Bureau of Economic Research, Inc, number razi90-1, September.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
  9. V. V. Chari & Patrick J. Kehoe, 1989. "International coordination of fiscal policy in limiting economies," Staff Report 121, Federal Reserve Bank of Minneapolis.
  10. 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.
  11. Wolfgang F. Stolper & Paul A. Samuelson, 1941. "Protection and Real Wages," Review of Economic Studies, Oxford University Press, vol. 9(1), pages 58-73.
  12. 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.
  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. Roger H. Gordon & James A. Levinsohn, 1990. "The Linkage between Domestic Taxes and Border Taxes," NBER Chapters, in: Taxation in the Global Economy, pages 357-396 National Bureau of Economic Research, Inc.
  15. Partha Dasgupta & Joseph Stiglitz, 1972. "On Optimal Taxation and Public Production," Review of Economic Studies, Oxford University Press, vol. 39(1), pages 87-103.
  16. 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.
  17. 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.
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