Social Choice and Welfare

, Volume 52, Issue 2, pp 215–223 | Cite as

Production efficiency and profit taxation

  • Stéphane GauthierEmail author
  • Guy Laroque
Original Paper


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 \(100\%\), 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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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  1. 1.PSEUniversity of Paris 1ParisFrance
  2. 2.Sciences-PoInstitute for Fiscal StudiesLondonUK
  3. 3.University College LondonLondonUK

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