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Redistribution, Production Inefficiency and Decentralized Efficiency

Hisahiro Naito

University of Tsukuba

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.

Number of Pages in PDF File: 19

Keywords: Production efficiency, decentralized efficiency, international taxation

JEL Classification: H21, F13

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Date posted: February 3, 2004  

Suggested Citation

Naito, Hisahiro, Redistribution, Production Inefficiency and Decentralized Efficiency (January 25, 2004). Available at SSRN: https://ssrn.com/abstract=492882 or http://dx.doi.org/10.2139/ssrn.492882

Contact Information

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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