Imperfect Competition and Optimal Taxation
AbstractThis 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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Bibliographic InfoPaper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 383.
Date of creation: Jun 2013
Date of revision:
Firms' Entry; Market Stuctures; Market Distortions; Optimal Dividend Income Tax;
Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ACC-2013-07-15 (Accounting & Auditing)
- NEP-ALL-2013-07-15 (All new papers)
- NEP-COM-2013-07-15 (Industrial Competition)
- NEP-DGE-2013-07-15 (Dynamic General Equilibrium)
- NEP-MAC-2013-07-15 (Macroeconomics)
- NEP-PBE-2013-07-15 (Public Economics)
- NEP-PUB-2013-07-15 (Public Finance)
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