Market structure, pigouvian taxation, and welfare |
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Authors: | Rajeev K Goel Edward Wei-Te Hsieh |
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Institution: | (1) Illinois State University, USA;(2) Normal and California State University, Los Angeles |
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Abstract: | Using a short-run partial equilibrium model of social welfare, this paper examines the social welfare implications of changing
Pigouvian taxes under three markets: perfect competition, monopoly, and Cournot oligopoly. The result for perfect competition
supports the earlier finding that Pigouvian taxation increases social welfare Buchanan, 1969]. However, in contrast to the
previous result that Pigouvian taxes lower welfare under monopoly, the authors show that if the noncompetitive distortion
is small, these taxes might still be useful in correcting monopoly-generated externalities and in improving social welfare.
Cournot firms react to the tax depending upon their individual perceptions of the gain in post-tax marginal revenue. Policy
implications of the study's results are discussed. |
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Keywords: | |
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