Tax incidence under oligopoly: a comparison of policy approaches

This paper presents a methodological approach for the analysis of tax incid ence that encompasses familiar forms of taxation in a general and analytica lly convenient model. In oligopolistic industries, the performance of a tax depends on the sensitivity of the unit tax rate to changes in industry out put. Output-elastic tax schedules are less Likely to be over-shifted and ha ve superior welfare properties relative to regulatory instruments that are less responsive to the equilibrium market quantity. For revenue neutral tax reforms, the finding of Delipalla and Keen (1992) that nd valorem taxes we lfare-dominate specific taxes under oligopoly is derived as a special case of this general result. (C) 1999 Elsevier Science S.A. All rights reserved.