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The welfare cost of imperfect competition and distortionary taxation

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  • Magnus Jonsson

    (Sveriges Riksbank)

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    Abstract

    The welfare cost of imperfect competition in the product and labor markets in the United States is quantified in a dynamic general equilibrium model. We find that the welfare cost of imperfect competition in the product market is 3.62 percent while it is 0.58 percent in the labor market, taking the transition path from the distorted to the optimal steady state into account. If we also take into account that the U.S. economy is characterized by distortionary taxation, the welfare cost of the product market distortion increases to 13.51 percent and the labor market distortion to 4.35 percent. (Copyright: Elsevier)

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    File URL: http://dx.doi.org/10.1016/j.red.2007.01.002
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    Bibliographic Info

    Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

    Volume (Year): 10 (2007)
    Issue (Month): 4 (October)
    Pages: 576-594

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    Handle: RePEc:red:issued:04-90

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    Related research

    Keywords: Imperfect competition; Distortionary taxation; Welfare;

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    Cited by:
    1. Sandra Gomes & P. Jacquinot & M. Mohr & M. Pisani, 2011. "Structural reforms and macroeconomic performance in the euro area countries: a model-based assessment," Working Papers w201113, Banco de Portugal, Economics and Research Department.
    2. Romain Restout, 2009. "The Balassa-Samuelson model in general equilibrium with markup variations," EconomiX Working Papers 2009-39, University of Paris West - Nanterre la Défense, EconomiX.
    3. Romain Restout, 2008. "Monopolistic Competition and the Dependent Economy Model," Post-Print halshs-00260868, HAL.
    4. Miguel Ricaurte, 2010. "The Role of Labor Markets in Structural Change," Working Papers Central Bank of Chile 584, Central Bank of Chile.
    5. Jørgensen, Ole Hagen & Jensen, Svend E. Hougaard, 2009. "Labour supply and retirement policy in an overlapping generations model with stochastic fertility," Discussion Papers of Business and Economics 1/2009, Department of Business and Economics, University of Southern Denmark.

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