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Production Efficiency and Profit Taxation

Author

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  • Stéphane Gauthier

    (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Guy Laroque

    (Sciences Po - Sciences Po, UCL - University College of London [London], Institute for Fiscal Studies)

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. This note shows 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.

Suggested Citation

  • Stéphane Gauthier & Guy Laroque, 2017. "Production Efficiency and Profit Taxation," Working Papers halshs-01622337, HAL.
    • Handle: RePEc:hal:wpaper:halshs-01622337
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01622337
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    References listed on IDEAS

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    Keywords

    optimal taxation; taxation of profits; production efficiency;
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