|Date:||10 April 2018|
|Authors:||Stéphane Gauthier and Guy Laroque|
Consider a simple general equilibrium economy with one representative consumer, a single competitive ﬁrm and the government. Suppose that the government has to ﬁnance public expenditures using linear consumption taxes and/or a lump-sum tax on proﬁts redistributed to the consumer. We show that, if the tax rate on proﬁts cannot exceed 100 percent, one cannot improve upon the second-best optimum of an economy with constant returns to scale by using a less eﬃcient proﬁt-generating decreasing returns to scale technology.