On the non-neutrality of profit taxation in a Cournot oligopoly with environmental effects

Davide Dragone, Luca Lambertini () and Arsen Palestini ()

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

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.

Date: 2009-03
New Economics Papers: this item is included in nep-env and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:bol:bodewp:662

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