The Welfare Cost of Imperfect Competition and Distortionary Taxation

Magnus Jonsson ()
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Magnus Jonsson: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden

No 170, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: The welfare cost of imperfect competition in the product and labor market as well as distortionary taxation is quantified in a dynamic general equilibrium model parameterized to fit the U.S. economy. We find that the welfare cost of imperfect competition in the product market is 35.74 percent while it is 0.66 percent in the labor market, taking the transition from the distorted to the optimal steady state into account. If we also take into account that the U.S. economy is characterized by distortionary taxation the welfare cost in the product market increases to 48.26 percent and 4.70 percent in the labor market.

Keywords: monopolistic competition; distortionary taxation; welfare (search for similar items in EconPapers)
JEL-codes: D40 H20 L10 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2004-10-01
New Economics Papers: this item is included in nep-com, nep-dge and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:rbnkwp:0170

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