On the Non-Neutrality of Profit Taxation in a Cournot Oligopoly with Environmental Effects

7 Pages Posted: 21 Jul 2009

See all articles by Davide Dragone

Davide Dragone

University of Bologna - Department of Economics

Luca Lambertini

University of Bologna - Department of Economics

Arsen Palestini

MEMOTEF - Sapienza University of Rome

Date Written: December 18, 2008

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.

Keywords: externalities, Pigouvian taxation, oligopoly

JEL Classification: H23, H25, L13, Q51

Suggested Citation

Dragone, Davide and Lambertini, Luca and Palestini, Arsen, On the Non-Neutrality of Profit Taxation in a Cournot Oligopoly with Environmental Effects (December 18, 2008). Available at SSRN: https://ssrn.com/abstract=1436404 or http://dx.doi.org/10.2139/ssrn.1436404

Davide Dragone (Contact Author)

University of Bologna - Department of Economics ( email )

Piazza Scaravilli 2
Bologna, 40126
Italy
0039.051.2098880 (Phone)

HOME PAGE: http://https://www.unibo.it/sitoweb/davide.dragone/en

Luca Lambertini

University of Bologna - Department of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy
+39 051 2092600 (Phone)
+39 051 2092664 (Fax)

Arsen Palestini

MEMOTEF - Sapienza University of Rome ( email )

Via del Castro Laurenziano
Roma, Rome 00185
Italy

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