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Income effects and the welfare consequences of tax in differentiated product oligopoly

Rachel Griffith (), Lars Nesheim and Martin O'Connell

No 10670, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Random utility models are widely used to study consumer choice. The vast majority of applications make strong assumptions about the marginal utility of income, which restricts income effects, demand curvature and pass-through. We show that flexibly modeling income effects can be important, particularly if one is interested in the distributional effects of a policy change, even in a market in which, a priori, the expectation is that income effects will play a limited role. We allow for much more flexible forms of income effects than is common and we illustrate the implications by simulating the introduction of an excise tax.

Keywords: compensation variation; demand estimation; income effects; oligopoly; pass-through (search for similar items in EconPapers)
JEL-codes: H20 L13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-dcm, nep-pbe, nep-pub and nep-upt
Date: 2015-06
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Journal Article: Income effects and the welfare consequences of tax in differentiated product oligopoly (2018) Downloads
Working Paper: Income effects and the welfare consequences of tax in differentiated product oligopoly (2015) Downloads
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