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Imperfect Competition and Optimal Taxation

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  • Andrea Colciago

Abstract

This paper provides optimal labor and dividend income taxation in a general equilibrium model with oligopolistic competition and endogenous firms' entry. In the long run the optimal dividend income tax corrects for inefficient entry. The dividend income tax depends on the form of competition and nature of the sunk entry costs. In particular, it is higher in market structures characterized by competition in quantities with respect to those characterized by price competition. Oligopolistic competition leads to an endogenous countercyclical price markup. As a result offsetting the distortions over the business cycle requires deviations from full tax smoothing.

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File URL: http://www.dnb.nl/en/binaries/Working%20Paper%20383%20-%20Adobe%20Acrobat_tcm47-293891.pdf
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Bibliographic Info

Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 383.

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Date of creation: Jun 2013
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Handle: RePEc:dnb:dnbwpp:383

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Keywords: Firms' Entry; Market Stuctures; Market Distortions; Optimal Dividend Income Tax;

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