Perfect Taxation with Imperfect Competition / Alan J. Auerbach, James R. Hines Jr..

Format:

Book

Author/Creator:

Auerbach, Alan J.

Contributor:

National Bureau of Economic Research.

Hines, James R, Jr.

Series:

Working Paper Series (National Bureau of Economic Research) no. w8138.

NBER working paper series no. w8138

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2001.

Summary:

This paper analyzes features of perfect taxation also known as optimal taxation when one or more private markets is imperfectly competitive. Governments with perfect information and access to lump-sum taxes can provide corrective subsidies that render outcomes efficient in the presence of imperfect competition. Relaxing either of these two conditions removes the government's ability to support efficient resource allocation and changes the perfect policy response. When governments cannot use lump-sum taxes, perfect tax policies represent compromises between the benefits of subsidizing output in the imperfectly competitive sectors of the economy and the costs of imposing higher taxes elsewhere. This tradeoff is formally identical for ad valorem and specific taxes, even though ad valorem taxation is welfare superior to specific taxation in the presence of imperfect competition. When governments have uncertain knowledge of the degree of competition in product markets, perfect corrective tax policy is generally of smaller magnitude than that when the degree of competition is known with certainty.

Notes:

Print version record

February 2001.