We examine the interplay between market structure and the form that commodity taxation should take in a general equilibrium model in which firms produce differentiated products and so are able to exert market power. Our analysis takes account of two important recent developments that affect market structure and so the appropriate design and effectiveness of commodity taxation: market deregulation and technological change. When market deregulation facilitates price discrimination, we find that tax policy is ineffective as a means to influence market structure. We further show that when tax rates are set optimally government is able to neutralize the potentially detrimental welfare impact of restrictive entry conditions in the differentiated product sector. Finally, we present conditions under which price discrimination is welfare improving.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
9416.
Length: Date of creation: Jan 2003 Date of revision: Handle: RePEc:nbr:nberwo:9416
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Find related papers by JEL classification: D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
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Cremer, Helmuth & Thisse, Jacques-Francois, 1994.
"Commodity Taxation in a Differentiated Oligopoly,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(3), pages 613-33, August.
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