A new version of Edgeworth's taxation paradox
AbstractEdgworth's taxation paradox states that an excise tax can decrease the market price of a good.� This paper presents a new version of the paradox in which a tax reduces price because it attracts entry of additional firms into the market.� The paper also presents two new applications: (i) an emissions tax that leads to an increase in industry emissions (due to entry), and (ii) an interest rate cut by the central bank that reduces lending by commercial banks (due to exit).� Basic principles of environmental regulation and monetary policy therefore fail under the conditions of the paradox.
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Bibliographic InfoPaper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 502.
Date of creation: 01 Aug 2010
Date of revision:
Bank lending; Cost pass-through; Edgeworth's paradox; Environmental regulation; Market structure; Taxation;
Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
- Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
This paper has been announced in the following NEP Reports:
- NEP-ACC-2010-09-18 (Accounting & Auditing)
- NEP-ALL-2010-09-18 (All new papers)
- NEP-ENE-2010-09-18 (Energy Economics)
- NEP-ENV-2010-09-18 (Environmental Economics)
- NEP-IND-2010-09-18 (Industrial Organization)
- NEP-MIC-2010-09-18 (Microeconomics)
- NEP-REG-2010-09-18 (Regulation)
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