The Social Cost of Optimal Taxes in an Imperfectly Competitive Economy
AbstractIn this paper we calibrate the social cost of optimal taxes in a class of imperfectly competitive economies and examine the correspondence of this social cost with the number of tax instruments and the number and the sources of distortions. We calibrate the Ramsey equilibrium for three standard models of imperfect competition. These settings are different in number of sources of market distortion and number of tax instruments. Our calibration clearly shows that optimal taxes in an imperfectly competitive economy incur lower social cost than those in a competitive economy, implying that they are generally more efficient as competition enhancing policy tools. We find that optimal taxes in our models can cost up to 48% less forgone consumption relative to those in a competitive market economy.
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Bibliographic InfoPaper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2005/6.
Length: 33 pages
Date of creation: Nov 2005
Date of revision: Nov 2010
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Optimal taxation; Ramsey Problem; Welfare Cost;
Find related papers by JEL classification:
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-11-05 (All new papers)
- NEP-DGE-2005-11-05 (Dynamic General Equilibrium)
- NEP-MAC-2005-11-05 (Macroeconomics)
- NEP-PBE-2005-11-05 (Public Economics)
- NEP-PUB-2005-11-05 (Public Finance)
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