Efficient policy with firm heterogeneity and variable markups

Atsushi Tadokoro

No 20-17, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: This study analyzes policy instruments to make the market outcome achieve the e?cient outcome in a model of monopolistic competition with ?rm heterogeneity and variable markups. In this model, ?rm heterogeneity and the markup pricing create distortions in the market equilibrium. Ad valorem and per-unit production taxes/subsidies work di?erently to improve these distortions. I show that by combining an ad valorem production tax and a per-unit production subsidy, these distortions are removed without adopting a ?rm-speci?c tax/subsidy.

Keywords: Variable markups; Misallocation; Firm heterogeneity; Monopolistic competition (search for similar items in EconPapers)
JEL-codes: D4 D6 F1 L0 L1 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2021-01
New Economics Papers: this item is included in nep-com and nep-ind
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Persistent link: https://EconPapers.repec.org/RePEc:osk:wpaper:2017

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