This paper tackles the increasingly significant problem of irrigation-induced soil salinity within a groundwater management model. Irrigation can result not only in heavier salt concentrations, but also in the removal of salt from the soil through return flows. Given these contradictory observations, we are interested in the effects on soil salt concentration if irrigation efficiency is improved. We develop a model of salt concentration patterns in both soil and groundwater. We introduce a negative externality to the production process by assuming that soil degradation due to higher soil salinity affects total factor productivity. Within this framework, we show that in the presence of this externality, increasing irrigation efficiency can lead to higher or lower soil salt concentration, depending on the social cost of transferring salt from one reservoir to another.