Optimal taxation with entry barriers

Selim, Sheikh ORCID: https://orcid.org/0000-0002-7931-092X 2005. Optimal taxation with entry barriers. Presented at: XII Annual Conference onPublic Economics, Mallorca, Spain, 3-4 February 2005.

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Abstract

This paper addresses the issue of optimal income taxation in an economy with entry barriers to firms and labor using an infinite horizon general equilibrium approach. The first benchmark model is one with monopolistic competition amongst firms producing a continuum of intermediate input goods, which finds that (i) the optimal labor income tax rate is lower as compared to a competitive market analogue; (ii) the optimal steady state capital income tax rate is nonzero. The second modified model introduces heterogeneity of agent type and entry barriers to private labor in public sector firms, and finds that the optimal sector specific labor income tax rates in this setting clearly suggest a labor income tax trade off between the public and private sectors. For strong (weak) entry barriers the model prescribes a relatively higher (lower) tax on public sector income. The optimal steady state capital income tax rate is nonzero, and its magnitude depends on the elasticity of demand of the publicly produced good.

Item Type:	Conference or Workshop Item (Paper)
Date Type:	Completion
Status:	Unpublished
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > H Social Sciences (General) H Social Sciences > HB Economic Theory
Uncontrolled Keywords:	Optimal Taxation; Monopolistic Competition; Entry Barriers; Private Agent; Public Agent.
Last Modified:	24 Oct 2022 11:41
URI:	https://orca.cardiff.ac.uk/id/eprint/49027

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