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 language | English |
|---|---|
| Pages (from-to) | 371-386 |
| Number of pages | 16 |
| Journal | Journal of Public Economics |
| Volume | 42 |
| Issue number | 3 |
| DOIs | |
| Publication status | Published - 1990 |
| Externally published | Yes |
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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 journal › Article
}
TY - JOUR
T1 - Final and intermediate goods taxation in an oligopolistic economy with free entry
AU - Konishi, Hideki
PY - 1990
Y1 - 1990
N2 - 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.
AB - 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.
UR - http://www.scopus.com/inward/record.url?scp=38249020689&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=38249020689&partnerID=8YFLogxK
U2 - 10.1016/0047-2727(90)90022-A
DO - 10.1016/0047-2727(90)90022-A
M3 - Article
VL - 42
SP - 371
EP - 386
JO - Journal of Public Economics
JF - Journal of Public Economics
SN - 0047-2727
IS - 3
ER -