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The welfare cost of imperfect competition and distortionary taxation

Author

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  • Magnus Jonsson

    (Sveriges Riksbank)

Abstract

The welfare cost of imperfect competition in the product and labor markets in the United States is quantified in a dynamic general equilibrium model. We find that the welfare cost of imperfect competition in the product market is 3.62 percent while it is 0.58 percent in the labor market, taking the transition path from the distorted to the optimal steady state into account. If we also take into account that the U.S. economy is characterized by distortionary taxation, the welfare cost of the product market distortion increases to 13.51 percent and the labor market distortion to 4.35 percent. (Copyright: Elsevier)

Suggested Citation

  • Magnus Jonsson, 2007. "The welfare cost of imperfect competition and distortionary taxation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(4), pages 576-594, October.
  • Handle: RePEc:red:issued:04-90
    DOI: 10.1016/j.red.2007.01.002
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Benoît Campagne & Aurélien Poissonnier, 2015. "Structural Reforms in DSGE Models : A Plead for Sensitivity Analysis," EcoMod2015 8482, EcoMod.
    3. Sandra Gomes & Pascal Jacquinot & Matthias Mohr & Massimiliano Pisani, 2013. "Structural Reforms and Macroeconomic Performance in the Euro Area Countries: A Model-Based Assessment," International Finance, Wiley Blackwell, vol. 16(1), pages 23-44, February.
    4. Vitor M. Carvalho & Manuel M. F. Martins, 2011. "Macroeconomic effects of fiscal consolidations in a DSGE model for the Euro Area: does composition matter?," FEP Working Papers 421, Universidade do Porto, Faculdade de Economia do Porto.
    5. Forni, L. & Gerali, A. & Pisani, M., 2010. "Macroeconomic Effects Of Greater Competition In The Service Sector: The Case Of Italy," Macroeconomic Dynamics, Cambridge University Press, vol. 14(05), pages 677-708, November.
    6. Romain Restout, 2008. "Monopolistic Competition and the Dependent Economy Model," Working Papers 0803, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    7. Miguel Ricaurte, 2010. "The Role of Labor Markets in Structural Change," Working Papers Central Bank of Chile 584, Central Bank of Chile.
    8. Vitor Carvalho & Manuel M. F. Martins, 2011. "Investment and output effects of fiscal consolidations in a new-Keynesian DSGE model for the Euro Area: composition matters?," EcoMod2011 3246, EcoMod.
    9. Jørgensen, Ole Hagen & Jensen, Svend E. Hougaard, 2009. "Labour supply and retirement policy in an overlapping generations model with stochastic fertility," Discussion Papers of Business and Economics 1/2009, University of Southern Denmark, Department of Business and Economics.
    10. Romain Restout, 2009. "The Balassa-Samuelson model in general equilibrium with markup variations," EconomiX Working Papers 2009-39, University of Paris Nanterre, EconomiX.
    11. Chang, Wen-ya & Chen, Ying-an & Chang, Juin-jen, 2013. "Growth and welfare effects of monetary policy with endogenous fertility," Journal of Macroeconomics, Elsevier, vol. 35(C), pages 117-130.
    12. repec:kap:decono:v:166:y:2018:i:1:d:10.1007_s10645-017-9312-9 is not listed on IDEAS

    More about this item

    Keywords

    Imperfect competition; Distortionary taxation; Welfare;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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