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Wells on Excise Tax Incidence in an Imperfectly Competitive Economy

In: Money and Employment

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  • Louise Davidson

Abstract

In his stimulating article, Wells has attempted to substitute ‘an aggregate equilibrium model of the Keynesian type’ for the usual general equilibrium models, since the latter ‘appear inadequate to deal with tax incidence in a “world of monopolies”’.1 Although I agree with Wells that general equilibrium models cannot handle his problem. I cannot concur in his rationale. It is not because he deals with a world of monopolies but rather because he is interested in aggregate conclusions that the general equilibrium method proves inadequate. General equilibrium assumes a constant level of real income for the economy;2 however, it is the determination of the level of real income and its distribution which are the essential elements of aggregate analysis. Elsewhere, I have presented a Keynesian-type analysis of the aggregate effects of a general and uniform excise tax in a purely competitive economy.3

Suggested Citation

  • Louise Davidson, 1990. "Wells on Excise Tax Incidence in an Imperfectly Competitive Economy," Palgrave Macmillan Books, in: Louise Davidson (ed.), Money and Employment, chapter 29, pages 443-449, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-11513-6_30
    DOI: 10.1007/978-1-349-11513-6_30
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