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Imperfect Competition and Industry-Specific Input Taxes

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  • Gareth D. Myles

    (University of Exeter)

Abstract

The article considers the role of industry-specific input taxes and aggregate production efficiency in economies with imperfect competition. It is first established that differentiated employment taxes can increase efficiency, and the determinants of the relative rates of such taxes are investigated. The employment of an industry will be taxed at a lower rate when that industry has low returns to scale and the tax-shifting effect is large. These findings are then combined with previous analysis of the taxation of final commodities and intermediate inputs. The results show that the optimal tax system will not, in general, maintain production efficiency. A charactertzation of optimal input taxes based on the elasticity of input demand is derived.

Suggested Citation

  • Gareth D. Myles, 1995. "Imperfect Competition and Industry-Specific Input Taxes," Public Finance Review, , vol. 23(3), pages 336-355, July.
    • Handle: RePEc:sae:pubfin:v:23:y:1995:i:3:p:336-355
    DOI: 10.1177/109114219502300303
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    References listed on IDEAS

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    1. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production: I--Production Efficiency," American Economic Review, American Economic Association, vol. 61(1), pages 8-27, March.
    2. Fogelman, Francoise & Quinzii, Martine & Guesnerie, Roger, 1978. "Dynamic processes for tax reform theory," Journal of Economic Theory, Elsevier, vol. 17(2), pages 200-226, April.
    3. Avinash Dixit, 1979. "Price changes and optimum taxation in a many-consumer economy," Journal of Public Economics, Elsevier, vol. 11(2), pages 143-157, March.
    4. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production II: Tax Rules," American Economic Review, American Economic Association, vol. 61(3), pages 261-278, June.
    5. Partha Dasgupta & Joseph Stiglitz, 1972. "On Optimal Taxation and Public Production," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 39(1), pages 87-103.
    6. Konishi, Hideki, 1990. "Final and intermediate goods taxation in an oligopolistic economy with free entry," Journal of Public Economics, Elsevier, vol. 42(3), pages 371-386, August.
    7. Myles, G. D., 1987. "Tax design in the presence of imperfect competition : An example," Journal of Public Economics, Elsevier, vol. 34(3), pages 367-378, December.
    8. Kanbur, S. M. R. & Myles, G. D., 1992. "Policy choice and political constraints," European Journal of Political Economy, Elsevier, vol. 8(1), pages 1-29, February.
    9. J. A. Mirrlees, 1972. "On Producer Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 39(1), pages 105-111.
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    Cited by:

    1. Kolm, Ann-Sofie, 1998. "Differentiated payroll taxes, unemployment, and welfare," Journal of Public Economics, Elsevier, vol. 70(2), pages 255-271, November.

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