TY  - JOUR
AU  - Auerbach,Alan J.
AU  - Hines,James R.,Jr.
TI  - Perfect Taxation with Imperfect Competition
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8138
PY  - 2001
Y2  - February 2001
UR  - http://www.nber.org/papers/w8138
L1  - http://www.nber.org/papers/w8138.pdf
N1  - Author contact info:
Alan J. Auerbach
Department of Economics
508-1 Evans Hall, #3880
University of California, Berkeley
Berkeley, CA 94720-3880
Tel: 510/643-0711
Fax: 510/643-0413
E-Mail: auerbach@econ.berkeley.edu

James R. Hines
Department of Economics
University of Michigan
343 Lorch Hall
611 Tappan Street
Ann Arbor, MI  48109-1220
Tel: 734/764-2320
Fax: 734/764-2769
E-Mail: jrhines@umich.edu
AB  - This paper analyzes features of perfect taxation   also known as optimal taxation   when one or more private markets is imperfectly competitive.  Governments with perfect information and access to lump-sum taxes can provide corrective subsidies that render outcomes efficient in the presence of imperfect competition.  Relaxing either of these two conditions removes the government's ability to support efficient resource allocation and changes the perfect policy response.  When governments cannot use lump-sum taxes, perfect tax policies represent compromises between the benefits of subsidizing output in the imperfectly competitive sectors of the economy and the costs of imposing higher taxes elsewhere.  This tradeoff is formally identical for ad valorem and specific taxes, even though ad valorem taxation is welfare superior to specific taxation in the presence of imperfect competition.  When governments have uncertain knowledge of the degree of competition in product markets, perfect corrective tax policy is generally of smaller magnitude than that when the degree of competition is known with certainty.
ER  -