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The distributional consequences of tax reforms under market distortions

Konstantinos Angelopoulos (), Jim Malley and Wei Jiang

Working Papers from Business School - Economics, University of Glasgow

Abstract: In this paper we examine the importance of imperfect competition in product and labour markets in determining the long-run welfare e¤ects of tax reforms assuming agent heterogeneneity in capital hold- ings. Each of these market failures, independently, results in welfare losses for at least a segment of the population, after a capital tax cut and a concurrent labour tax increase. However, when combined in a realistic calibration to the UK economy, they imply that a capital tax cut will be Pareto improving in the long run. Consistent with the the- ory of second-best, the two distortions in this context work to correct the negative distributional e¤ects of a capital tax cut that each one, on its own, creates.

Keywords: market imperfections; heterogeneous agents; unemployment; tax reform. (search for similar items in EconPapers)
JEL-codes: E24 E62 (search for similar items in EconPapers)
Date: 2011-09
New Economics Papers: this item is included in nep-dge and nep-pbe
References: Add references at CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: The Distributional Consequences of Tax Reforms under Market Distortions (2011) Downloads
Working Paper: The distributional consequences of tax reforms under market distortions (2011) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:gla:glaewp:2011_21

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