We study the link between second-best production efficiency and the constraints on income distribution imposed by private ownership of firms in economies with Ramsey taxation. We review the result of Dasgupta and Stiglitz [1972], Mirrlees [1972], Hahn [1973], and Sadka [1977] about firm-specific...

In economies with Ramsey taxation, decreasing returns to scale, and private ownership, we show that second-best production efficiency is desirable when profit tax rates vary across groups of firms provided that the institutional rules which define profit incomes of consumers depend on the...