Redistribution, Production Inefficiency and Decentralized Efficiency

19 Pages Posted: 3 Feb 2004

Date Written: January 25, 2004


This paper analyzes the role of production distortion for income redistribution in an international trade model. In particular, it examines the role of the Stolper and Samuelson effect (Stolper and Samuelson, 1941) on efficient income redistribution. It first shows that production inefficiency can be a part of a Pareto-efficient tax system when there is an asymmetric information problem between the government and individuals. Second, by using the technique that Diamond and Mirrlees (1971) originally developed, this paper shows that such production inefficiency is not only Pareto-improving for a small country but also essential in achieving world-wide Pareto-efficient allocation. Those two results suggest important policy implications for commercial policies.

Keywords: Production efficiency, decentralized efficiency, international taxation

JEL Classification: H21, F13

Suggested Citation

Naito, Hisahiro, Redistribution, Production Inefficiency and Decentralized Efficiency (January 25, 2004). Available at SSRN: or

Hisahiro Naito (Contact Author)

University of Tsukuba ( email )

Tennodai 1-1-1
Tsukuba City, Ibaraki Prefecture
81-29-853-7431 (Phone)

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