Arbeitspapier

Optimal Income Taxation under Monopolistic Competition

This paper is concerned with cross-dependencies between endogenous market structure and tax policy. We extend the Mirrlees (1971) model of income taxation with a monopolistic competition framework with general additively separable consumer preferences. We show that price and variety distortions resulting from the market structure imply that income tax policy needs to be complemented with commodity or firm taxation to achieve the constrained social optimum. We calibrate the model and find that, when choosing optimal tax policy, the failure to account for the market structure results in a welfare loss of 1:77 percent. Motivated by practical cases, we study a policy regime that is solely based on income taxation. Under this policy regime, departures from the social optimum can be compensated by lower and less regressive income taxes than those obtained under the regime with all forms of taxation. We also examine the role of consumer preferences for policy outcomes and show that it is substantially amplified by an endogenous market structure.

Sprache
Englisch

Erschienen in
Series: CESifo Working Paper ; No. 9309

Klassifikation
Wirtschaft
Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
Taxation and Subsidies: Efficiency; Optimal Taxation
Oligopoly and Other Imperfect Markets
Thema
tax policy
monopolistic competition
variety effect
consumer preferences
endogenous labor

Ereignis
Geistige Schöpfung
(wer)
Tarasov, Alexander
Zubrickas, Robertas
Ereignis
Veröffentlichung
(wer)
Center for Economic Studies and ifo Institute (CESifo)
(wo)
Munich
(wann)
2021

Handle
Letzte Aktualisierung
10.03.2025, 11:43 MEZ

Datenpartner

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Objekttyp

  • Arbeitspapier

Beteiligte

  • Tarasov, Alexander
  • Zubrickas, Robertas
  • Center for Economic Studies and ifo Institute (CESifo)

Entstanden

  • 2021

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