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Constraints on Income Distribution and Production Efficiency In Economies with Ramsey Taxation

Author

Listed:
  • Blackorby, Charles

    (Department of Economics, University of Warwick)

  • Murty, Sushama

    (Department of Economics, University of Warwick)

Abstract

We study the link between second-best production efficiency and the constraints on income distribution imposed by private ownership of firms in economies with Ramsey taxation. We review the result of Dasgupta and Stiglitz [1972], Mirrlees [1972], Hahn [1973], and Sadka [1977] about firm-specific profit taxation leading to second-best production efficiency. Problems in the proofs of this result in these papers have been identified by Reinhorn [2005]. We provide an alternative, and with some hope a more intuitive, proof of this result. The mechanism employed in our proof is also used to show second-best production efficiency under some configuarations of private ownership without any (or at best, uniform) profit taxation. The results obtained raise questions about the genericity of the phenomenon of second-best production inefficiency and about recovering social shadow prices in such economies.

Suggested Citation

  • Blackorby, Charles & Murty, Sushama, 2009. "Constraints on Income Distribution and Production Efficiency In Economies with Ramsey Taxation," The Warwick Economics Research Paper Series (TWERPS) 908, University of Warwick, Department of Economics.
  • Handle: RePEc:wrk:warwec:908
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    File URL: https://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2009/twerp_908.pdf
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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;The Society for Social Choice and Welfare, 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. St├ęphane Gauthier & Guy Laroque, 2017. "Production Efficiency and Profit Taxation," PSE Working Papers halshs-01622337, HAL.

    More about this item

    Keywords

    Ramsey taxation ; production inefficiency ; general equilibrium ; private ownership;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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