Profit taxation and capital accumulation in a dynamic oligopoly model |
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Authors: | Massimo Baldini Luca Lambertini |
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Affiliation: | a Dipartimento di Economia Politica, Università di Modena e Reggio Emilia, Viale Berengario, 41100 Modena, Italy;b Dipartimento di Scienze Economiche, Università di Bologna, Strada Maggiore 45, 40125 Bologna, Italy;c ENCORE, Faculty of Economics & Econometrics, University of Amsterdam, WB1018 Amsterdam, The Netherlands |
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Abstract: | We illustrate a differential oligopoly game using the capital accumulation dynamics à la Ramsey. We evaluate the effects of profit taxation, proving that there exists a tax rate yielding the same steady state social welfare as under social planning. Contrary to the static approach, our dynamic analysis shows that, in general, profit taxation affects firms’ decisions concerning capital accumulation and sales. In particular, it has pro-competitive effects provided that the extent of delegation is large enough (and conversely). |
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Keywords: | Differential games Capital accumulation Open-loop equilibria Closed-loop equilibria Profit taxation |
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