IDEAS home Printed from https://ideas.repec.org/p/exe/wpaper/1010.html
   My bibliography  Save this paper

Constraints on profit income distribution and production efficiency in private ownership economies with Ramsey taxation

Author

Listed:
  • Sushama Murty

    (Department of Economics, University of Exeter)

Abstract

In economies with Ramsey taxation, decreasing returns to scale, and private ownership, we show that second-best production efficiency is desirable when profit tax rates vary across groups of firms provided that the institutional rules which define profit incomes of consumers depend on the distribution of profits across these groups of firms. The classic results of Dasgupta and Stiglitz [1972] (of firm-specific profit taxation) and Diamond and Mirrlees [1971] and Guesnerie [1995] (of uniform one-hundred percent profit taxation) follow as special cases of our model. Moreover, second-best analysis suggests the desirability of proportionate taxation of inter-firm transactions in the absence of profit taxes. Alternatively, it recommends profit taxation as a perfect substitute for intermediate-input taxation. The analysis also suggests that, combined with the knowledge of the distribution of profit incomes in the economy, profit taxation can promote both efficiency and redistributive objectives of the government.

Suggested Citation

  • Sushama Murty, 2010. "Constraints on profit income distribution and production efficiency in private ownership economies with Ramsey taxation," Discussion Papers 1010, University of Exeter, Department of Economics.
    • Handle: RePEc:exe:wpaper:1010
    as

    Download full text from publisher

    File URL: https://exetereconomics.github.io/RePEc/dpapers/DP1010.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Reinhorn, Leslie J., 2013. "Production efficiency and excess supply," Mathematical Social Sciences, Elsevier, vol. 65(2), pages 92-100.
    2. Cornet, B., 1984. "Existence of equilibria in economies with increasing returns," LIDAM Discussion Papers CORE 1984007, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    3. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production II: Tax Rules," American Economic Review, American Economic Association, vol. 61(3), pages 261-278, June.
    4. J. A. Mirrlees, 1972. "On Producer Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 39(1), pages 105-111.
    5. Knud Jørgen Munk, 1980. "Optimal Taxation with some Non-Taxable Commodities," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(4), pages 755-765.
    6. Myles,Gareth D., 1995. "Public Economics," Cambridge Books, Cambridge University Press, number 9780521497695, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Reinhorn, Leslie J., 2013. "Production efficiency and excess supply," Mathematical Social Sciences, Elsevier, vol. 65(2), pages 92-100.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    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. Knud Munk, 2008. "Tax-tariff reform with costs of tax administration," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 15(6), pages 647-667, December.
    3. Sushama Murty, "undated". "Lessons from optimal taxation theory for the GST and beyond," Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi Discussion Papers 17-07, Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi, India.
    4. Stéphane Gauthier & Guy Laroque, 2019. "Production efficiency and profit taxation," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 52(2), pages 215-223, February.
    5. Murty, Sushama, 2009. "Topology of utility possibility frontiers of economies with Ramsey taxation," Economic Research Papers 271288, University of Warwick - Department of Economics.
    6. Alexey Kushnir & Robertas Zubrickas, 2024. "Optimal labor income taxation with the dividend effect," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 78(4), pages 1169-1201, December.
    7. Anthony Hannagan & Hideo Konishi, 2011. "Inverse Elasticity Rule in a Production Efficiency Problem," Boston College Working Papers in Economics 778, Boston College Department of Economics.
    8. Richter, Wolfram F., 2009. "Taxing education in Ramsey's tradition," Journal of Public Economics, Elsevier, vol. 93(11-12), pages 1254-1260, December.
    9. Donald Bruce & William Fox & Matthew Murray, 2003. "To Tax Or Not To Tax? The Case Of Electronic Commerce," Contemporary Economic Policy, Western Economic Association International, vol. 21(1), pages 25-40, January.
    10. Alberto Alesina & Andrea Ichino & Loukas Karabarbounis, 2011. "Gender-Based Taxation and the Division of Family Chores," American Economic Journal: Economic Policy, American Economic Association, vol. 3(2), pages 1-40, May.
    11. Wolfram Richter & Kerstin Schneider, 2001. "Taxing Mobile Capital with Labor Market Imperfections," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(3), pages 245-262, May.
    12. Till Gross, 2013. "Capital Taxation, Intermediate Goods, and Production Efficiency," Carleton Economic Papers 13-09, Carleton University, Department of Economics.
    13. Frenkel, Jacob A & Razin, Assaf, 1987. "Fiscal Policies and the World Economy; An Intertemporal Approach (Cambridge, Mass.: MIT Press, 1987)," MPRA Paper 20438, University Library of Munich, Germany.
    14. Blackorby, Charles & Murty, Sushama, 2009. "Constraints on Income Distribution and Production Efficiency In Economies with Ramsey Taxation," Economic Research Papers 271292, University of Warwick - Department of Economics.
    15. Chen, Xuyang & Hindriks, Jean, 2023. "Multinational Taxation under Pressure: The Role of Tax Deductibility," LIDAM Discussion Papers CORE 2023013, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    16. David Coady & Jean Dreze, 2000. "Commodity Taxation and Social Welfare: The Generalised Ramsey Rule," Working papers 87, Centre for Development Economics, Delhi School of Economics.
    17. Borger, Bruno De, 2011. "Optimal congestion taxes in a time allocation model," Transportation Research Part B: Methodological, Elsevier, vol. 45(1), pages 79-95, January.
    18. Alan Krause, 2014. "Piecewise Linear Income Tax Reforms," Discussion Papers 14/25, Department of Economics, University of York.
    19. Emanuela Randon, 2002. "L’analisi positiva dell’esternalità: rassegna della letteratura e nuovi spunti," Working Papers 58, University of Milano-Bicocca, Department of Economics, revised Jun 2002.
    20. Coate, Stephen, 2000. "An Efficiency Approach to the Evaluation of Policy Changes," Economic Journal, Royal Economic Society, vol. 110(463), pages 437-455, April.

    More about this item

    Keywords

    Ramsey taxation; private ownership; profit taxation; production inefficiency; general equilibrium;
    All these keywords.

    JEL classification:

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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:exe:wpaper:1010. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sebastian Kripfganz (email available below). General contact details of provider: https://edirc.repec.org/data/deexeuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.