Final and intermediate goods taxation in an oligopolistic economy with free entry

Research output: Contribution to journalArticle

14 Citations (Scopus)

Abstract

Optimal tax rules are analyzed in an oligopolistic economy with free entry. The initial market allocation has two types of distortion: price is set above marginal cost by the oligopolistic behavior, and the advantage of increasing returns to scale is left to be unexploited by excessive entry of oligopolists. With production subsidy accompanied by a self-financing lump-sum franchise tax on oligopolistic firms, Pareto efficient allocation could be restored. Without a lump-sum tax on oligopolists, however, the second-best optimum requires taxing intermediate inputs used in the oligopolistic industry. The optimal intermediate goods taxation follows the production-side Ramsey rule to encourage the use of intermediate inputs elastic to output level, and vice versa.

Original languageEnglish
Pages (from-to)371-386
Number of pages16
JournalJournal of Public Economics
Volume42
Issue number3
DOIs
Publication statusPublished - 1990
Externally publishedYes

Fingerprint

Free entry
Intermediate inputs
Intermediate goods
Tax
Taxation
Ramsey rule
Marginal cost
Franchise
Increasing returns to scale
Self-financing
Pareto
Production subsidy
Efficient allocation
Industry
Optimal tax
Price distortions

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance

Cite this

Final and intermediate goods taxation in an oligopolistic economy with free entry. / Konishi, Hideki.

In: Journal of Public Economics, Vol. 42, No. 3, 1990, p. 371-386.

Research output: Contribution to journalArticle

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