Monopoly Power and Optimal Taxation of Labor Income
Sheikh Tareq Selim
Additional contact information
Sheikh Tareq Selim: Cardiff University
Macroeconomics from EconWPA
This paper studies the Ramsey problem of optimal labor income taxation in a simple model economy which deviates from a first best representative agent economy in three important aspects, namely, flat rate second best tax, monopoly power in intermediate product market, and monopolistic wage setting. There are three key findings: (1) In order to correct for monopoly distortion the Ramsey tax prescription is to set the labor income tax rate lower than its competitive market analogue; (2) Government’s optimal tax policy is independent of its fiscal treatment of distributed pure profits; and (3) For higher levels of monopoly distortions Ramsey policy is more desirable than the first best policy. The key analytical results are verified by a calibration which fits the model to the stylized facts of the US economy.
Keywords: Optimal taxation; Monopoly power; Ramsey policy (search for similar items in EconPapers)
JEL-codes: H21 H30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mic and nep-pbe
Note: Type of Document - pdf; pages: 33. Cardiff Economics Working Paper Series
References: Add references at CitEc
Citations Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpma:0511002
Access Statistics for this paper
More papers in Macroeconomics from EconWPA
Series data maintained by EconWPA ().