Pass-Through and the Welfare Effects of Taxation under Imperfect Competition: A General Analysis

Takanori Adachi and Michal Fabinger

Discussion papers from Graduate School of Economics , Kyoto University

Abstract: This paper provides a comprehensive analysis of welfare effects of taxation under imperfect competition. Specifically, in relation to tax pass-through, we provide “sufficient statistics” formulas for two welfare measures under a fairly general class of demand, production cost, and market competition. The measures are (i) marginal value of public funds (i.e., the marginal loss of social welfare due to an increase in government revenue), and (ii) incidence (i.e., the ratio of a marginal change in consumer surplus to a marginal change in producer surplus). We begin with the case of symmetric firms facing both unit and ad valorem taxes to derive a simple and empirically relevant set of formulas. Then, we provide a substantial generalization of these results to encompass firm heterogeneity by using the idea of tax revenue specified as a general function parameterized by a vector of tax parameters.

Keywords: Imperfect Competition; Pass-through; Marginal Value of Public Funds; Incidence; Sufficient Statistics (search for similar items in EconPapers)
JEL-codes: D43 H22 L13 (search for similar items in EconPapers)
Pages: 87
Date: 2021-09
New Economics Papers: this item is included in nep-com and nep-cwa
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:kue:epaper:e-21-003

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