Generalized Production Efficiency

Laurence Jacquet and Etienne Lehmann

No 19982, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: When should governments sacrifice production efficiency for redistribution? We generalize the celebrated result of Diamond and Mirrlees (1971a,b) by allowing for imperfect competition, suboptimal and nonlinear taxation. We demonstrate that production efficiency hinges on the flexibility of the tax system in compensating gains and losses from changes in factor prices. This requires the tax system to target each factor’s income. We show how to adjust tax systems or production policies for imperfect targeting and market failures, even when the tax system is not flexible enough. We then obtain new sufficient statistics formulas. Endogenous factor prices do not modify the test to identify Pareto-improving tax reforms.

Keywords: Production efficiency; Nonlinear income taxation; Several income sources; Endogenous prices (search for similar items in EconPapers)
JEL-codes: F13 H21 H22 H23 H24 L5 (search for similar items in EconPapers)
Date: 2025-02
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP19982 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:19982

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP19982

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().