Macroeconomics with Endogenous Markups and Optimal Taxation

Federico Etro (federico.etro@unifi.it)

Working Papers - Economics from Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa

Abstract: We augment a flexible price dynamic general equilibrium model with any symmetric intratemporal preferences over a variety of goods supplied under monopolistic, Bertrand or Cournot competition to derive implications for business cycle and market inefficiencies. Endogenous markups can magnify the impact of shocks on consumption and labor supply through intertemporal substitution mechanisms, and the optimal fiscal policy requires a variable labor income subsidy and a capital income tax that converges to zero in the long run. With an endogenous number of goods and strategic interactions, also entry affects markups and the optimal fiscal policy requires also a tax on profits. We characterize equilibrium and efficient market structures and derive optimal tax rules for a variety of preferences, including a new type of general additive preferences that nest direct, indirect, implicit and homothetic additivity

Keywords: Business cycles; Monopolistic competition; Optimal taxation; variable markups. (search for similar items in EconPapers)
JEL-codes: E1 E2 E3 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2018
New Economics Papers: this item is included in nep-dge, nep-mac, nep-pbe and nep-pub
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Citations: View citations in EconPapers (13)

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Related works:
Journal Article: Macroeconomics with Endogenous Markups and Optimal Taxation (2018)
Working Paper: Macroeconomics with endogenous markups and optimal taxation (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:frz:wpaper:wp2018_25.rdf

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