American Economic Journal:
Economic Policy
ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)
Market Power and Income Taxation
American Economic Journal: Economic Policy
vol. 13,
no. 4, November 2021
(pp. 329–54)
Abstract
This article analyzes concerns about market power and inequality in a model with multiple sectors, heterogeneous abilities, endogenous labor supply, and nonlinear income taxation. Proportional markups with no profit dissipation have no effect on the economy, and a policy that reduces a nonproportional markup raises (lowers) welfare when it is higher (lower) than a weighted average of other markups. With proportional (partial or full) profit dissipation, proportional markups are equivalent to a downward shift of the distribution of abilities, and the optimal policy rule with nonproportional markups maximizes consumer plus producer surplus despite concerns for distribution and labor supply distortion.Citation
Kaplow, Louis. 2021. "Market Power and Income Taxation." American Economic Journal: Economic Policy, 13 (4): 329–54. DOI: 10.1257/pol.20200103Additional Materials
JEL Classification
- D43 Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
- D61 Allocative Efficiency; Cost-Benefit Analysis
- H21 Taxation and Subsidies: Efficiency; Optimal Taxation
- H23 Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
- K21 Antitrust Law
- L13 Oligopoly and Other Imperfect Markets
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