Tax reforms under market distortions in product and labour markets

Angelopoulos, K. , Jiang, W. and Malley, J.R. (2013) Tax reforms under market distortions in product and labour markets. European Economic Review, 61, pp. 28-42. (doi: 10.1016/j.euroecorev.2013.03.003)

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Using a two-agent model comprised of capitalists and workers, this paper examines the importance of imperfect competition in product and labour markets in determining the welfare effects of tax reform. The reform considered consists of eliminating the capital tax alongside a concurrent rise in the labour tax. In contrast to the perfectly competitive model, models with product or labour market failures each result in welfare losses for the workers in the long-run. In a realistic calibration to the UK economy, combining these imperfections implies that this tax reform will be Pareto improving in the long-run. However, these welfare gains over longer time horizons come at the cost of short-run losses, which, consistent with previous research, result in welfare losses for workers post-reform.

Item Type:Articles
Glasgow Author(s) Enlighten ID:Jiang, Miss Wei and Malley, Professor Jim and Angelopoulos, Professor Konstantinos
Authors: Angelopoulos, K., Jiang, W., and Malley, J.R.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:European Economic Review

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Project CodeAward NoProject NamePrincipal InvestigatorFunder's NameFunder RefLead Dept
512541Optimal taxation in heterogeneous agent dynamic general equilibrium models.James MalleyEconomic & Social Research Council (ESRC)ES/H021140/1BUS - ECONOMICS