Rising Markups and Optimal Redistributive Taxation

Gürer, Eren

doi:10.2139/ssrn.3792769

SSRN Journal

2021

DOI: 10.2139/ssrn.3792769

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Rising Markups and Optimal Redistributive Taxation

Eren Gürer

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2021

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Rising markups and optimal redistributive taxation

Salimi

2021

Int Tax Public Finance

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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.

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Rising markups and optimal redistributive taxation

Salimi

2021

Int Tax Public Finance

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Rising Markups and Optimal Redistributive Taxation

Cited by 1 publication

References 62 publications

Rising markups and optimal redistributive taxation

Rising markups and optimal redistributive taxation

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