Measuring the Deadweight Costs of Corporate Income Tax Thresholds under Monopolistic Competition

Jason Nassios and Janine Dixon

Centre of Policy Studies/IMPACT Centre Working Papers from Victoria University, Centre of Policy Studies/IMPACT Centre

Abstract: This paper extends the model of Dixon et al. (2004) by introducing taxes on non-labour income with thresholds into a simple firm-size framework. The modification allows analysis of how threshold-based corporate tax provisions distort firms' output decisions and create deadweight losses. By linking firm counts and average costs to the presence of a tax threshold, the model quantifies the efficiency costs associated with discontinuities in the effective tax schedule. The framework provides a transparent way to assess how threshold policies influence aggregate efficiency without relying on a full general equilibrium setting.

Keywords: Monopolistic competition; Firm entry and scale; Tax efficiency; Tax incidence; Corporate income tax; Thresholds (search for similar items in EconPapers)
JEL-codes: H21 H22 H25 L11 (search for similar items in EconPapers)
Date: 2025-11
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