MACROECONOMICS EFFECTS OF AN INDIRECT TAXATION REFORM UNDER IMPERFECT COMPETITION

Ramon Torregrosa

Working Papers from Instituto de Estudios Fiscales

Abstract: . This paper explores the effect of a tax reform which shifts from specific to value added taxation in a general equilibrium model with imperfect competition (both Cournot and Free Entry Oligopoly). Such tax reform is characterized through a rate of substitution between taxes. This characterization allows us to find those rates of substitution between taxes which have an inflationary (deflationary) effect on price, as well as those rates which generate positive (negative) balanced budget multiplier. Furthermore, the model captures the impact of the tax reform on welfare taking into account both government expenditure and profits, in contrast with the partial equilibrium approach. ACKNOWLEDGEMENT I am grateful to Luis Corchón, Lauren Knott and Fernando Llavador and the participants in the XVIII Simposio de Análisis Económico and the XI Encuentro de Economía Pública for their comments and suggestions. I am also indebted to the Instituto de Estudios Fiscales for its financial support. The usual caveat applies.

Keywords: Indirect Taxation; Tax Reform; Imperfect Competition (search for similar items in EconPapers)
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