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Rising markups and optimal redistributive taxation
- This study explores the implications of rising markups for optimal Mirrleesian income and profit taxation. Using a stylized model with two individuals, the main forces shaping welfare-optimal policies are analytically characterized. Although a higher profit tax has redistributive benefits, it adversely affects market competition, leading to a greater equilibrium cost-of-living. Rising markups directly contribute to a decline in optimal marginal taxes on labor income. The optimal policy response to higher markups includes increasingly relying on the profit tax to fund redistribution. Declining optimal marginal income taxes assists the redistributive function of the profit tax by contributing to the expansion of the profit tax base. This response alone considerably increases the equilibrium cost-of-living. Nevertheless, a majority of the individuals become better off with the optimal policy. If it is not possible to tax profits optimally, due, for example, to profit shifting, increasing redistribution via income taxes is not optimal; every individual is worse off relative to the scenario with optimal profit taxation.
Author: | Eren GürerORCiDGND |
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URN: | urn:nbn:de:hebis:30:3-696083 |
DOI: | https://doi.org/10.1007/s10797-021-09712-y |
ISSN: | 1573-6970 |
Parent Title (English): | International tax and public finance |
Publisher: | Springer Science + Business Media B.V. |
Place of publication: | New York, NY |
Document Type: | Article |
Language: | English |
Date of Publication (online): | 2021/12/19 |
Date of first Publication: | 2021/12/19 |
Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
Release Date: | 2023/10/23 |
Tag: | Imperfect competition; Markups; Optimal redistribution; Taxation |
Volume: | 29 |
Issue: | 5 |
Page Number: | 33 |
First Page: | 1227 |
Last Page: | 1259 |
Note: | Open Access funding enabled and organized by Projekt DEAL. |
HeBIS-PPN: | 515062901 |
Institutes: | Wirtschaftswissenschaften |
Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
JEL-Classification: | D Microeconomics / D4 Market Structure and Pricing / D43 Oligopoly and Other Forms of Market Imperfection |
H Public Economics / H2 Taxation, Subsidies, and Revenue / H21 Efficiency; Optimal Taxation | |
H Public Economics / H2 Taxation, Subsidies, and Revenue / H25 Business Taxes and Subsidies | |
Sammlungen: | Universitätspublikationen |
Licence (German): | Creative Commons - CC BY - Namensnennung 4.0 International |