Market power and the Laffer curve Eugenio J. Miravete, Katja Seim, Jeff Thurk
By: Miravete Marín, Eugenio J
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Contributor(s): Seim, Katja | Thurk, Jeff.
Material type: 
ArticlePublisher: 2018Subject(s): PRODUCTOS | IMPUESTOS | PRECIOS | MERCADO | CURVA DE LAFFEROnline resources: Click here to access online
In:
Econometrica : Journal of the Econometric Society v. 86, n. 5, September 2018, p. 1651-1687Summary: We study commodity taxation and characterize the Laffer curve, a trade-off between tax rates and revenue, in noncompetitive markets. Pricing in these markets leads to incomplete tax pass-through and agents re optimize their purchase and pricing decisions in response to any tax change. We use detailed data from Pennsylvania, a state that monopolizes retail sales of alcoholic beverages, to estimate a model of demand for
horizontally differentiated products that ties consumers’ demographic characteristics to heterogeneous preferences for spirits.We find that under the state’s current tax policy,
spirits are overpriced. Distillers respond to decreases in the tax rate by increasing wholesale prices, which limits the state’s revenue gain to only 13% of the incremental tax revenue predicted under the common assumption of perfect competition. The strategic response of noncompetitive firms to changes in taxation therefore flattens the Laffer curve significantly.
| Item type | Current location | Home library | Call number | Status | Date due | Barcode |
|---|---|---|---|---|---|---|
| Artículos | IEF | IEF | OP 232/2018/5-1 (Browse shelf) | Available | OP 232/2018/5-1 |
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Resumen.
Bibliografía.
We study commodity taxation and characterize the Laffer curve, a trade-off between tax rates and revenue, in noncompetitive markets. Pricing in these markets leads to incomplete tax pass-through and agents re optimize their purchase and pricing decisions in response to any tax change. We use detailed data from Pennsylvania, a state that monopolizes retail sales of alcoholic beverages, to estimate a model of demand for
horizontally differentiated products that ties consumers’ demographic characteristics to heterogeneous preferences for spirits.We find that under the state’s current tax policy,
spirits are overpriced. Distillers respond to decreases in the tax rate by increasing wholesale prices, which limits the state’s revenue gain to only 13% of the incremental tax revenue predicted under the common assumption of perfect competition. The strategic response of noncompetitive firms to changes in taxation therefore flattens the Laffer curve significantly.
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