In a recent contribution, H. Naito (1999) has shown that production efficiency may be violated in the optimum with non-linear income taxation. Using a slightly simpler framework, this paper complements Naito's analysis in showing that production efficiency does not hold in the optimum with (i)...

In an analysis of a two-type income tax model with endogenous wages, this paper shows that production efficiency is violated in the optimum with (i) non-linear and (ii) linear income taxation if and only if a distortionary tax schedule is implemented. These findings complement earlier results of...