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Monopolistic Competition and Increasing Returns: Implications for Optimal Fiscal Policies and Over-entry

Author

Listed:
  • Chien-Yin Chen

    (Department of Economics, Natinal Taipei University)

  • Fu-Sheng Hung

    (Department of Economics, National Chengchi University)

Abstract

By separating monopolistic competition from increasing returns to fully disentangle their corresponding effects, this paper find that optimal tax rates on factor incomes are decreasing in the degree of increasing returns, but are independent of the degree of market power. Moreover, free entry may lead to over or too little entry relative to the social optimum, depending on the relative strengths of the effects from increasing returns, market power, and congestion. These conclusions are different from the recent study that uses the same parameter to characterize increasing returns and monopolistic competition.

Suggested Citation

  • Chien-Yin Chen & Fu-Sheng Hung, 2012. "Monopolistic Competition and Increasing Returns: Implications for Optimal Fiscal Policies and Over-entry," Economics Bulletin, AccessEcon, vol. 32(2), pages 1142-1150.
    • Handle: RePEc:ebl:ecbull:eb-11-00542
    as

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    References listed on IDEAS

    as
    1. Juin‐jen Chang & Hsiao‐wen Hung & Jhy‐yuan Shieh & Ching‐chong Lai, 2007. "Optimal Fiscal Policies, Congestion and Over‐entry," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(1), pages 137-151, March.
    2. Glomm, Gerhard & Ravikumar, B., 1994. "Public investment in infrastructure in a simple growth model," Journal of Economic Dynamics and Control, Elsevier, vol. 18(6), pages 1173-1187, November.
    3. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Optimal fiscal policies; monopolistic competition; increasing returns; over entry; congestion;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H4 - Public Economics - - Publicly Provided Goods

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