Unit Versus Ad Valorem Taxes: The Private Ownership of Monopoly in General Equilibrium

Employing a general equilibrium framework, Blackorby and Murty prove that, with a monopoly and under 100% profit taxation and uniform lump‐sum transfers, the utility possibility sets of economies with unit and ad valorem taxes are identical. This welfare equivalence is in contrast to most previous studies, which demonstrate the superiority of the ad valorem tax in a partial equilibrium framework. In this paper, we relax the assumption of 100% profit taxation and allow the consumers to receive profit incomes from ownership of shares in the monopoly firm. We find that, under certain regularity conditions, for any fixed vector of profit shares, the utility possibility sets of economies with unit and ad valorem taxes are not generally identical. But it does not imply that one completely dominates the other. Rather, the two utility possibility frontiers cross each other. Additionally, employing a standard partial equilibrium welfare analysis, we show that the Marshallian social surpluses resulting from the two tax structures are identical when the government can implement unrestricted transfers.     

Cooperative choice of corporate social responsibility in a bilateral monopoly model

This article presents an examination of a linear bilateral monopoly model with endogenous and cooperative choice of corporate social responsibility (CSR) level. This article also describes an investigation of the effects of cooperative choice of CSR on the market and welfare. New findings are explicit derivation of the necessary and sufficient condition for solving a double marginalization problem in the bilateral monopoly model with CSR. In addition, this report is the first demonstrating that cooperative CSR with Nash bargaining improves consumer surplus, social welfare and each firm’s profit to a level higher than that achieved through noncooperative CSR. Furthermore, cooperative CSR with Nash bargaining is shown to be capable of completely solving the double marginalization problem generated by a bilateral monopoly, although the manufacturer and the retailer are not vertically integrated.     

IMPERFECT SUBSTITUTES FOR PERFECT COMPLEMENTS: SOLVING THE ANTICOMMONS PROBLEM

An integrated monopoly, where two complements forming a composite good are offered by a single firm, is typically welfare superior to a complementary monopoly. This is ‘the tragedy of the anticommons’. We analyse the robustness of such result when competition is introduced for one or both complements. Particularly, competition in only one of the two markets may be welfare superior to an integrated monopoly if and only if the substitutes differ in their quality so that, as their number increases, average quality and/or quality variance increases. Then, absent an adequate level of product differentiation, favouring competition in some sectors while leaving monopolies in others may be detrimental for consumers and producers alike. Instead, competition in both markets may be welfare superior if goods are close substitutes and their number in each market is sufficiently high, no matter the degree of product differentiation.     

Unit versus ad valorem taxes: Monopoly in general equilibrium

We show that if a monopoly sector is imbedded in a general equilibrium framework and profits are taxed at one hundred percent, then unit (specific) taxation and ad valorem taxation are equivalent on the set of Pareto optima.     

Optimum taxation with errors in administration

The paper compares the welfare levels which can be achieved by two distinct tax regimes: lump-sum taxation, where one attempts to identify individuals and allocate transfers or subsidies on the basis of characteristics, and income taxation, where characteristics are not observed but personal incomes are measured and taxed. Where there are no errors in classifying individuals, lump-sum taxation is superior, but, where mistakes are made in the allocation of lump-sum grants or subsidies, income taxation may be more attractive. The level of errors where the regimes are equally desirable in terms of social welfare is computed in simple models following that of Feldstein (1973). Where there is strong aversion to inequality, then income taxation becomes preferable at quite small errors.In analysing income taxation it is shown that in the Feldstein model with endogenous wages the marginal tax rate (in optimum income taxation) on the more skilled is negative and that on the less skilled is positive in contrast to the standard results [see Seade (1977)] with exogenous wages.     

A national-security argument for trade protection

This paper constructs a two-period model in which a domestic monopoly firm produces a good given an amount of import of the good. In the second period, the monopoly firm faces a capacity constraint with regard to its production level. The production level in the first period sets the maximum quantity for the second period. We investigate the effects of quotas on welfare to examine the economic rationale of the national-security argument for trade protection. Under decreasing marginal costs of a monopoly firm, tightening the import quota may increase the domestic consumer surplus and the social welfare.     

Private patent protection in the theory of Schumpeterian growth

We develop a Schumpeterian growth model with privately optimal intellectual property rights (IPRs) enforcement and investigate the implications for intellectual property and R&D policies. In our setting, successful innovators undertake costly rent protection activities (RPAs) to enforce their patents. RPAs deter innovators who seek to discover higher quality products and thereby replace the patent holder. RPAs also deter imitators who seek to capture a portion of the monopoly market by imitating the patent holder's product. We investigate the role of private IPR protection by considering the impact of subsidies to RPAs on economic growth and welfare. We find that a larger RPA subsidy raises the innovation rate if and only if the ease of imitation is above a certain level. With regards to welfare, we find that depending on the parameters it may be optimal to tax or subsidize RPAs. Thus a prohibitively high taxation of RPAs is not necessarily optimal. We also show that the presence of imitation strengthens the case for subsidizing R&D.     

效率与公平兼顾的最优所得税:理论框架及最优税率估计

最优所得税主要探讨税收如何兼顾公平与效率问题,以及给定公平偏好程度下,如何确定最优边际税率水平。即使在崇尚罗尔斯社会福利函数的社会里,政府同时兼顾再分配和财政收入目标的基础上,只要略加考虑税收对劳动供给的效应,哪怕是微弱的考虑和兼顾,最高边际税率都不会达到100%。而且,借鉴斯特恩最优线性所得税模型及美国个人所得税制度,估计我国现行个人所得税最高边际税率还可以适当降低到36%左右。     

Foreign direct investment,tax competition and social expenditure

The aim of this paper is to make a first step towards studying the role of social expenditure and its interaction with corporate taxation in determining the destination of foreign direct investment (FDI) flows. Using panel data for 18 OECD countries and measuring the extent of social welfare policies by the (public social expenditure)/GDP ratio, we find strong support for the conjecture that redistributive social welfare state policies are valued by multinationals as, for instance, they may signal a government's commitment to social stability.     

Measuring Welfare Changes and the Excess Burden of Taxation*

This paper examines methods used to evaluate the welfare effects of tax changes, with emphasis on the measurement problems involved. Welfare changes and excess burdens are defined, along with approximations. Aggregate measures, using a social welfare function, are examined. The special case of income taxation is then examined, leading to discussion of the marginal welfare cost of taxation and the marginal cost of funds. The measurement methods examined include the use and estimation of direct and indirect utility functions, along with the algebraic and numerical integration from estimated Marshallian demand functions to the compensated demands. The use of equivalent incomes to examine tax changes, using unit record data from household budget surveys, is then discussed.     

Positive public economics: reinterpreting ‘optimal’ policies

The standard positive/normative divide fails to capture the way economists use ‘optimal’ taxation models. This paper argues that the better way to understand public economics is through a three-part division between positive, normative, and instrumental models. An instrumental model is about means and ends. Once this additional dimension is acknowledged, one can see that ‘optimal’ taxation models are closely connected to what are generally seen as purely positive models. I argue that economists have been using similar standards to assess ‘optimal’ taxation models as they use to assess positive models. Recent advances in optimal taxation theory have embraced the positive aspects of models, even about social welfare functions, something that is generally classified as a normative.     

On monopoly welfare gains,scale efficiency and the costs of decentralization

Inside the neoclassical framework a monopoly produces an unambiguous loss of social welfare. In this article some dynamic efficiency aspects of monopoly in connection with economies of scale are discussed. Two different cases of the costs of capacity expansion for a branch are compared: (1) the capacity expansion takes place with only one, multiplant, monopoly firm, (2) the capacity expansion takes place in a branch producing the same output but with two or more multiplant firms. It is argued that monopoly welfare gains are likely to arise for a centralized process of capacity expansion compared to a decentralized one.     

Foreign competition and optimal privatization with excess burden of taxation

We examine in a mixed oligopoly setting how foreign competition and the excess burden of taxation will affect privatization policy in the presence of strategic tax/subsidy policies. We show that in the presence of excess burden of taxation with foreign competitors, output subsidy coupled with import tariff and partial privatization is adopted to improve the social welfare. However, if the excess burden of taxation is relatively large, the government may switch to use production tax coupled with tariff policy and partial privatization to improve the social welfare.     

The Distributional Effects of Monopoly

This paper examines the relative burden of monopoly, measured using the equivalent variation, for different household income levels. The results indicate that, whatever the size of the absolute welfare loss due to monopoly, there may be a substantial effect on the distribution of welfare.     

Second best welfare economics in the mixed economy

The general problem of measuring welfare for large government projects is considered in a context where the government may interfere with the private market sector in a variety of ways. Measures are decomposed into a pure efficiency part and a pure equity part and it is shown that the efficiency part is measured by integrals under ‘uncompensated’ market demand functions. It is also shown that the efficiency part may be further decomposed into second best contributions due to commodity taxation, monopoly power and quantity constraints.     

R&D Subsidies versus R&D Cooperation in a Duopoly with Spillovers and Pollution

We introduce pollution, as a by‐product of production, into a non‐tournament model of R&D with spillovers. Technology policy takes the form of either R&D subsidisation or pre‐competitive R&D cooperation. We show that, when the emissions tax is exogenous, the optimal R&D subsidy can be negative, i.e. there should be a tax on R&D, depending on the extent of the appropriability problem and the degree of environmental damage. In a wide class of cases, depending on the parameter values, welfare in the case of R&D cooperation, is lower than welfare in the case of R&D subsidisation.     

Specific vs Ad Valorem Strategic Export Subsidies with Taxation Distortion

This paper employs a model to compare the welfare between optimal specific and ad valorem export subsidies if the subsidy payment is financed by distortional taxation. It is found that the welfare under the specific subsidy regime is higher (lower) than that under the ad valorem subsidy regime if the social cost of taxation distortion is low (high). Moreover, the signs of the two optimal subsidies are also crucially dependent on this social cost. They are positive (negative) if the social cost is low (high).     

TOURISM, TAXES AND IMMISERIZATION: A TRADE THEORETIC ANALYSIS

Abstract.   Many countries promote tourism as a device for earning foreign exchange and promoting domestic welfare and growth. In all these countries the non-traded goods (internationally not traded) are consumed by both domestic residents and tourists. It is well known that the relative price of non-traded goods and services is determined in the local market – hence the tourist demand results in monopoly power in trade for the host country. We use a very simple two-country model to demonstrate the specific nature of the offer curve and the trade equilibrium and the difficulties of taxation.     

Efficient taxation, wage bargaining and policy coordination

This paper is related to the literature on optimal nonlinear taxation under right-to-manage wage formation, and we assume that the fall-back profit facing firms during wage bargaining depends on the profit they can obtain if moving production abroad. The purpose is to study how policy coordination among countries can be used to increase the welfare level in comparison with an uncoordinated equilibrium. We consider coordinated policy reforms with respect to the marginal taxation of labor income, the unemployment benefit and the provision of a public good. The results show that policy coordination that leads to fewer hours of work per employee and/or a reduction of the unemployment benefit will increase welfare compared to the uncoordinated equilibrium.     

Monopoly Welfare Losses in the Long Run

Irrespective of the merit of any previous approaches to assess the deadweight loss due to monopoly they are all static in character and disregard the long term effects of monopoly power. Taking into account the long run consequences of monopoly power within the framework of the new growth theory yields startling new insights. In contrast to the Schumpeterian view that there is a tradeoff between static inefficiency and dynamic progressiveness monopoly power is shown to entail not only static welfare losses but also to exert an adverse influence on economic growth. Once this is granted the long run welfare loss due to monopoly can be shown to dwarf the static losses so far treated in the economics literature.