Maximizing tax revenue for profit maximizing monopolist with the Cobb-Douglas production function and linear demand as a bilevel programming problem

Zrinka Lukač (), Krunoslav Puljić () and Vedran Kojić ()
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Zrinka Lukač: Faculty of Economics and Business, University of Zagreb
Krunoslav Puljić: Faculty of Economics and Business, University of Zagreb
Vedran Kojić: Faculty of Economics and Business, University of Zagreb

No 2401, EFZG Working Papers Series from Faculty of Economics and Business, University of Zagreb

Abstract: Optimal taxation and profit maximization are two very important problems, naturally related to one another since companies striving operates given tax system. However, in the literature these two problems are usually considered separately, either by studying optimal taxation or by studying profit maximization. This paper tries links the two problems together by formulating a bilevel model in which government acts as a leader and profit maximizing follower act as a follower. The exact form of the tax revenue function as well as optimal tax amount and optimal input levels are derived in cases when returns of scale take on values 0.5, 1 and 2. Several numerical examples and accompanying illustrations are given.

Keywords: optimal taxation; government; profit maximization; monopolist; Cobb-Douglas production function; linear demand; bilevel programming (search for similar items in EconPapers)
JEL-codes: C61 C72 D42 H21 (search for similar items in EconPapers)
Pages: 16
Date: 2024-04-11
New Economics Papers: this item is included in nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zag:wpaper:2401

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