Income taxation and production efficiency in a simple two-sector economy

Thomas Gaube

No 14/2000, Bonn Econ Discussion Papers from University of Bonn, Bonn Graduate School of Economics (BGSE)

Abstract: In a recent contribution, H. Naito (1999) has shown that production efficiency 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 efficiency does not hold in the optimum with (i) non-linear and (ii) linear income taxation provided that second best and first best do not coincide. These findings 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.

Keywords: income taxation; production efficiency (search for similar items in EconPapers)
JEL-codes: H21 H23 (search for similar items in EconPapers)
Date: 2000
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bonedp:142000

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