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Production efficiency and profit taxation

Abstract : Consider a simple general equilibrium economy with one representative consumer, a single competitive firm and the government. Suppose that the government has to finance public expenditures using linear consumption taxes and/or a lump-sum tax on profits redistributed to the consumer. We show that, if the tax rate on profits cannot exceed 100 percent, one cannot improve upon the second-best optimum of an economy with constant returns to scale by using a less efficient profit-generating decreasing returns to scale technology.
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Submitted on : Sunday, September 30, 2018 - 7:52:49 PM
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  • HAL Id : halshs-01884350, version 1


Stéphane Gauthier, Guy Laroque. Production efficiency and profit taxation. Social Choice and Welfare, Springer Verlag, 2019, 52 (2), pp.215-223. ⟨halshs-01884350⟩



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