Income taxation and production eÆciency in a simple two - sector economy
نویسنده
چکیده
In a recent contribution, H. Naito (1999) has shown that production efciency may be violated in the optimum with non-linear income taxation. Using a slightly simpler framework, this paper complements Naito's analysis in showing that production e ciency does not hold in the optimum with (i) non-linear and (ii) linear income taxation provided that second best and rst best do not coincide. These ndings indicate that income taxation generally implies the desirability to complement the distortion between consumer and producer prices by means of a corresponding distortion in input prices.
منابع مشابه
Multiple Equilibria and Progressive Taxation of Labor Income
This paper shows that in a one-sector real business cycle model with strong increasing returns in production, progressive taxation of labor income can stabilize the economy against sunspot ‡uctuations, even when the capital tax schedule is ‡at. This result is consistent with the U.S. tax code in which labor-income taxation is more progressive than capital-income taxation.
متن کاملUnderstanding the Evolution of Inequality during Transition: the Optimal Income Taxation Framework
What explains the spectacular increases in inequality of disposable income in transitional economies of Central and Eastern Europe? There are at least two possible explanations. First, the pre-tax distribution of income became more unequal because of the shift to a market economy. Second, the degree of progressivity of the income tax system declined. But each of these factors is in turn determi...
متن کاملOptimal Government Spending and Taxation in Three-Sector Endogenous Growth Model-Case Iran
The recent literature on taxation and growth has stressed the optimality of a zero long-run taxation on all accumulative factors of production. For a given path of government spending, the optimal tax plan requires the government to build up a positive stock of public wealth in the short run in the long-run, government spending can be financed with the income accruing from the management of the...
متن کاملThe Welfare Effects of Switching from Consumption Taxation to Inflation Taxation in Iran’s Economy
The net effects of switching from consumption taxation to inflation taxation on resource allocation and welfare crucially depend on production externalities. With elastic labor supply, raising inflation taxation decreases leisure, but increases the levels of real consumption, capital, and output. Moreover, this tax switch has two opposing effects on the level of real money balances: A positive ...
متن کاملDi↵erential Taxation and Occupational Choice⇤
We study nonlinear income taxation in a Roy model in which agents’ productivity is sectorspecific. We show that when income taxes can be sector-specific, the Diamond-Mirrlees theorem (according to which the second-best displays production e ciency) fails: social welfare (be it Rawlsian or Weighed Utilitarian) can be increased by assigning some agents to their least productive sector. By sacrifi...
متن کامل