Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/314744 
Year of Publication: 
2025
Series/Report no.: 
CESifo Working Paper No. 11705
Publisher: 
CESifo GmbH, Munich
Abstract: 
We propose a new approach to assess the impact of regulatory changes on the production sector such as competition policies, taxing intermediate goods, robots or AI, trade regulation, production of public firms or environmental standards for firms. Our framework covers multidimensional nonlinear taxation with multiple income sources, General Equilibrium (GE) adjustments and market failures. We clarify under which conditions on the tax system the production sector should be regulated only to increase aggregate output, a recommendation we label the Production Regulation principle. Under these conditions, regulatory changes can be combined with adequate GE-neutralizing tax reforms to offset the GE effects on taxpayers' utility levels. This ensures that changes in the production sector's regulation that increases aggregate output do not deteriorate individual welfare, thereby resulting in a Pareto improvement. We also provide formulas that balance the effects of regulatory changes on aggregate production and their pre-distributive impact, when a GE-neutralizing tax reform is not feasible. These formulas introduce new GE-multipliers, which also appear in our calculations for the impact of tax reforms, optimal income tax systems and identifying Pareto-improving tax reforms.
Subjects: 
production efficiency
market frictions
nonlinear income taxation
several income sources
endogenous prices
JEL: 
H21
H22
H23
H24
L50
F13
Document Type: 
Working Paper
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