Rising markups and optimal redistributive taxation

Download

s10797-021-09712-y.pdf

Date

2022-10-01

Author

Gürer, Eren

Metadata

Show full item record

This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Item Usage Stats

115
views

38
downloads

This study explores the implications of rising markups for optimal Mirrleesian income and profit taxation. Using a stylized model with two individuals, the main forces shaping welfare-optimal policies are analytically characterized. Although a higher profit tax has redistributive benefits, it adversely affects market competition, leading to a greater equilibrium cost-of-living. Rising markups directly contribute to a decline in optimal marginal taxes on labor income. The optimal policy response to higher markups includes increasingly relying on the profit tax to fund redistribution. Declining optimal marginal income taxes assists the redistributive function of the profit tax by contributing to the expansion of the profit tax base. This response alone considerably increases the equilibrium cost-of-living. Nevertheless, a majority of the individuals become better off with the optimal policy. If it is not possible to tax profits optimally, due, for example, to profit shifting, increasing redistribution via income taxes is not optimal; every individual is worse off relative to the scenario with optimal profit taxation.

Subject Keywords

Markups, Optimal redistribution, Imperfect competition, Taxation, MULTIMARKET CONTACT, INCOME, ELASTICITIES, COMPETITION, TRADE, MICRO, POWER, BASE, RISE

URI

https://hdl.handle.net/11511/101462

Journal

INTERNATIONAL TAX AND PUBLIC FINANCE

DOI

https://doi.org/10.1007/s10797-021-09712-y

Collections

Department of Economics, Article

Suggestions

OpenMETU
Core

Pro-rich Inflation and Optimal Income Taxation Gürer, Eren; Weichenrieder, Alfons J. (2021-11-01) We study the implications of an increase in the price of necessities, which disproportionally hurts the poor, for optimal income taxation. When the government is utilitarian and disutility from labor supply is linear, the optimal nominal taxes and transfers are unchanged as households supply more labor to secure their consumption expenditures. Quantitative analyses with convex disutility of labor supply reveal that, because of positive labor supply effects, keeping average tax rates constant suffices to opt...
Optimal monetary policy and the timing of asset trade in open economies Senay, Ozge; Sutherland, Alan (2007-05-01) This paper analyses the timing of asset trade and its implications for monetary policy and welfare in open economies. Optimal policy is shown to differ significantly depending on whether asset trade takes place before or after policy decisions are made.
Inflation across income groups: the case of Turkey Çelik, Duygu; Parmaksız, Ömer Kağan; Cömert, Hasan; Department of Economics (2020-10) This study, covering the period from 2004 to 2018, investigates the inflation differentials across income groups and the determinants of group-specific inflation in Turkey. We use the micro-data from the Household Budget Survey and consumer price data to calculate group-specific inflation rates. We find that inflation differentials across income groups vary throughout time in Turkey. Lower-income groups have higher inflation exposures in first half the period under investigation, especially between 20...
Inflation targeting and financial dollarization: an empirical investigation Gökten, Selin; Özmen, Erdal; Department of Economics (2008) This study investigates the implications of financial dollarization for inflation targeting framework. To this end, monetary policy rule, inflation targeting performance and international reserves equations are estimated for twenty four inflation targeting countries with different levels of financial dollarization. The results based on the panel data estimations indicate that monetary policy rule and behavior of accumulating international reserves are affected by the degree of financial dollarization. Furth...
Pro-rich inflation in Europe: Implications for the measurement of inequality Gürer, Eren; Weichenrieder, Alfons (2020-04-01) This paper studies the distributional consequences of a systematic variation in expenditure shares and prices. Using European Union Household Budget Surveys and Harmonized Index of Consumer Prices data, we construct household-specific price indices and reveal the existence of a pro-rich inflation in Europe. Over the period 2001-15, the consumption bundles of the poorest deciles in 25 European countries have, on average, become 11.2 percentage points more expensive than those of the richest deciles. We find ...

Citation Formats

E. Gürer, “Rising markups and optimal redistributive taxation,” INTERNATIONAL TAX AND PUBLIC FINANCE, vol. 29, no. 5, pp. 1227–1259, 2022, Accessed: 00, 2023. [Online]. Available: https://hdl.handle.net/11511/101462.