Optimal indirect taxes and subsidies under imperfect competition by Hao Wang
By: Wang, Hao
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Material type: 
ArticlePublisher: 2018Subject(s): IMPUESTOS INDIRECTOS | IMPOSICION OPTIMA | AYUDA ESTATAL | SUBVENCIONES PUBLICAS | COMPETENCIA DESLEAL | MODELOS ECONOMETRICOSOnline resources: Click here to access online
In:
Journal of Institutional and Theoretical Economics: JITE v. 174, n. 2, June 2018, p. 334-350Summary: This paper considers optimal indirect taxes and subsidies in an economy with imperfect competition. All commodities are taxable. A beneficent government chooses indirect tax and subsidy rates to maximize consumer utility, conditional
on raising certain tax revenue. This paper finds that the government’s optimal taxes and subsidies should equalize the after-tax Lerner indexes (or price-tomarginal-cost ratios) of all commodities. The proposed tax rule eliminates the price distortions caused by market power. It thus results in welfare gain rather than deadweight loss.
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Resumen.
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This paper considers optimal indirect taxes and subsidies in an economy with imperfect competition. All commodities are taxable. A beneficent government chooses indirect tax and subsidy rates to maximize consumer utility, conditional
on raising certain tax revenue. This paper finds that the government’s optimal taxes and subsidies should equalize the after-tax Lerner indexes (or price-tomarginal-cost ratios) of all commodities. The proposed tax rule eliminates the price distortions caused by market power. It thus results in welfare gain rather than deadweight loss.
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