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A Note on Taxation, Imperfect Competition and the Balanced Budget Multiplier

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  • Molana, Hassan
  • Moutos, Thomas

Abstract

This paper explores the implications of the form of taxation for the size of the balanced budget multiplier in imperfectly competitive models. The authors show that the balanced budget multiplier is positive but less than unity when there is either a lump-sum or a proportional profit tax, that it is zero when taxes are proportional to total income (wage and profit income), and that it can be negative when a proportional tax is levied on wage income alone. Copyright 1992 by Royal Economic Society.

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  • Molana, Hassan & Moutos, Thomas, 1992. "A Note on Taxation, Imperfect Competition and the Balanced Budget Multiplier," Oxford Economic Papers, Oxford University Press, vol. 44(1), pages 68-74, January.
  • Handle: RePEc:oup:oxecpp:v:44:y:1992:i:1:p:68-74
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    Cited by:

    1. Wen-Ya Chang & Ching-Chong Lai, 1999. "Efficiency wages and the balanced budget theorem," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 27(3), pages 314-324, September.
    2. Heijdra, Ben J. & Ligthart, Jenny E., 2007. "Fiscal policy, monopolistic competition, and finite lives," Journal of Economic Dynamics and Control, Elsevier, vol. 31(1), pages 325-359, January.
    3. Molana, Hassan & Zhang, Junxi, 2001. " Market Structure and Fiscal Policy Effectiveness," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(1), pages 147-164, March.
    4. Ramón Torregrosa, 2008. "Macroeconomic effects of an indirect tax substitution," Journal of Economics, Springer, vol. 94(3), pages 199-221, September.
    5. Molana, Hassan, 2000. "Effectiveness of Fiscal Policy in a Model of Imperfect Competition with Transactions Money," Australian Economic Papers, Wiley Blackwell, vol. 39(1), pages 56-67, March.
    6. Tetsuya Nakajima, 2010. "A Simple Model Of Keynesian Unemployment," Metroeconomica, Wiley Blackwell, vol. 61(2), pages 239-256, May.
    7. Chi-Ting Chin & Ching-Chong Lai & Ming-Ruey Kao, 2010. "Welfare-Maximising Pricing In A Macroeconomic Model With Imperfect Competition And Consumption Externalities," Australian Economic Papers, Wiley Blackwell, vol. 49(3), pages 200-208, September.
    8. Torregrosa, Ramon J., 1998. "On the monotonicity of balanced budget multiplier under imperfect competition," Economics Letters, Elsevier, vol. 59(3), pages 331-335, June.
    9. Kaas, Leo & Madden, Paul, 2005. "Imperfectly competitive cycles with Keynesian and Walrasian features," European Economic Review, Elsevier, vol. 49(4), pages 861-886, May.
    10. Emmanuelle Taugourdeau, 2002. "Imperfect Competition and Fiscal Policy Transmission in a Two-Country Economy," Open Economies Review, Springer, vol. 13(1), pages 47-71, January.
    11. Damania, D. & Masden, Jakob B., 1995. "Monetary policy and macroeconomic equilibrium in an oligopolistic economy," Journal of Macroeconomics, Elsevier, vol. 17(4), pages 651-665.
    12. Molana, Hassan & Montagna, Catia, 2000. "Market structure, cost asymmetries, and fiscal policy effectiveness," Economics Letters, Elsevier, vol. 68(1), pages 101-107, July.
    13. Luís F. Costa & Huw Dixon, 2009. "Fiscal Policy under Imperfect Competition: A Survey," Working Papers Department of Economics 2009/25, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    14. Andersen, Torben M. & Rasmussen, Bo Sandemann & Sorensen, Jan Rose, 1996. "Optimal fiscal policy in open economies with labour market distortions," Journal of Public Economics, Elsevier, vol. 63(1), pages 103-117, December.
    15. Ramón J. Torregrosa Montaner, 2003. "Balanced budget multiplier with indirect taxes under imperfect competition," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 18(1), pages 3-13.
    16. Balamatsias, Pavlos, 2017. "Inequality, imperfect competition, and fiscal policy," MPRA Paper 82178, University Library of Munich, Germany.
    17. Jim Malley & Hassan Molana, 2000. "Monopolistic Competition, Efficiency Wages and Perverse Effects of Demand Shock," Working Papers 2000_20, Business School - Economics, University of Glasgow, revised Feb 2001.
    18. Jim Malley & Hassan Molana, 2002. "Efficiency Wages, Unemployment and Macroeconomic Policy," Dundee Discussion Papers in Economics 126, Economic Studies, University of Dundee.
    19. Jean-Pascal Bénassy, 2000. "Les modèles macroéconomiques de concurrence imparfaite sont-ils classiques ou Keynésiens ?," Cahiers d'Économie Politique, Programme National Persée, vol. 37(1), pages 273-288.
    20. Luís Costa, 2007. "GDP steady-state multipliers under monopolistic competition revisited," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 6(3), pages 181-204, December.
    21. Georgios Christou & Panagiotis Chronis, 2017. "Markups and fiscal policy: analytical framework and an empirical investigation," Working Papers 221, Bank of Greece.
    22. Lai, Ching-chong & Chin, Chi-ting & Chang, Shu-hua, 2010. "Vertical separation versus vertical integration in a macroeconomic model with imperfect competition," International Review of Economics & Finance, Elsevier, vol. 19(4), pages 590-602, October.

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