Dragone, Davide ; Lambertini, Luca ; Palestini, Arsen
(2009)
On the non-neutrality of profit taxation in a Cournot oligopoly with environmental effects.
Bologna:
Dipartimento di Scienze economiche DSE,
p. 11.
DOI 10.6092/unibo/amsacta/4584.
In: Quaderni - Working Paper DSE
(662).
ISSN 2282-6483.
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Abstract
We consider the joint effect of profit and Pigouvian taxation in a model of imperfect competition. We show that, when both profit taxation and Pigouvian taxation/subsidy are used, the former is no longer neutral. The two fiscal tools are substitutes, and for any profit taxation rate there exists a unique Pigouvian tax that entails the first best outcome as an equilibrium. Our analysis therefore suggests that policy makers in charge of different taxation policies should coordinate in order to optimally design the tax menu for firms.
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