Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/200302 
Year of Publication: 
2018
Series/Report no.: 
IFS Working Papers No. W18/13
Publisher: 
Institute for Fiscal Studies (IFS), London
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. We show 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.
Subjects: 
optimal taxation
taxation of profits
production efficiency
JEL: 
H21
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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