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Optimal income taxation under monopolistic competition

This paper is concerned with cross-dependencies between endogenous market structure and tax policy. We extend the Mirrlees (Rev Econ Stud 38:175–208, 1971) model of income taxation with a monopolistic competition framework with general additively separable consumer preferences. We show that quantity...

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Autores principales: Tarasov, Alexander, Zubrickas, Robertas
Formato: Online Artículo Texto
Lenguaje:English
Publicado: Springer Berlin Heidelberg 2022
Materias:
Acceso en línea:https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9533291/
https://www.ncbi.nlm.nih.gov/pubmed/36212900
http://dx.doi.org/10.1007/s00199-022-01463-z
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author Tarasov, Alexander
Zubrickas, Robertas
author_facet Tarasov, Alexander
Zubrickas, Robertas
author_sort Tarasov, Alexander
collection PubMed
description This paper is concerned with cross-dependencies between endogenous market structure and tax policy. We extend the Mirrlees (Rev Econ Stud 38:175–208, 1971) model of income taxation with a monopolistic competition framework with general additively separable consumer preferences. We show that quantity and variety distortions resulting from the market structure require adjustments to income tax policy, which also needs to be complemented with commodity or firm taxation to achieve the constrained social optimum. We calibrate the model and find that in policy design the failure to account for the market structure results in a welfare loss of 1.77%. Motivated by practical cases, we study a policy regime that is solely based on income taxation. We show that departures from the social optimum can be compensated by lower and less regressive income taxes and a smaller government compared to the regime with income and commodity taxes. We also examine the role of consumer preferences for policy outcomes and show that it is substantially amplified by an endogenous market structure.
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spelling pubmed-95332912022-10-05 Optimal income taxation under monopolistic competition Tarasov, Alexander Zubrickas, Robertas Econ Theory Research Article This paper is concerned with cross-dependencies between endogenous market structure and tax policy. We extend the Mirrlees (Rev Econ Stud 38:175–208, 1971) model of income taxation with a monopolistic competition framework with general additively separable consumer preferences. We show that quantity and variety distortions resulting from the market structure require adjustments to income tax policy, which also needs to be complemented with commodity or firm taxation to achieve the constrained social optimum. We calibrate the model and find that in policy design the failure to account for the market structure results in a welfare loss of 1.77%. Motivated by practical cases, we study a policy regime that is solely based on income taxation. We show that departures from the social optimum can be compensated by lower and less regressive income taxes and a smaller government compared to the regime with income and commodity taxes. We also examine the role of consumer preferences for policy outcomes and show that it is substantially amplified by an endogenous market structure. Springer Berlin Heidelberg 2022-10-05 /pmc/articles/PMC9533291/ /pubmed/36212900 http://dx.doi.org/10.1007/s00199-022-01463-z Text en © The Author(s) 2022 https://creativecommons.org/licenses/by/4.0/Open AccessThis article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article’s Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article’s Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit http://creativecommons.org/licenses/by/4.0/ (https://creativecommons.org/licenses/by/4.0/) .
spellingShingle Research Article
Tarasov, Alexander
Zubrickas, Robertas
Optimal income taxation under monopolistic competition
title Optimal income taxation under monopolistic competition
title_full Optimal income taxation under monopolistic competition
title_fullStr Optimal income taxation under monopolistic competition
title_full_unstemmed Optimal income taxation under monopolistic competition
title_short Optimal income taxation under monopolistic competition
title_sort optimal income taxation under monopolistic competition
topic Research Article
url https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9533291/
https://www.ncbi.nlm.nih.gov/pubmed/36212900
http://dx.doi.org/10.1007/s00199-022-01463-z
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