Capital taxation and imperfect competition: ACE vs. CBIT

Kurt R. Brekke*, Armando J. Garcia Pires, Dirk Schindler, Guttorm Schjelderup

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

7 Citations (Scopus)

Abstract

This paper compares the Comprehensive Business Income Tax (CBIT) and the Allowance for Corporate Equity tax (ACE) under imperfect competition using an oligopoly Salop model and a monopolistic competition model. A key insight is that the effect of a switch to either tax system depends on technology and the intensity of competition. Both tax systems are distortionary when entry is endogenous. Using the Salop model, we show that ACE (CBIT) tends to improve welfare in decreasing returns (increasing returns) to scale industries, whereas the two regimes are welfare neutral in constant returns to scale industries.

Original languageEnglish
Pages (from-to)1-15
Number of pages15
JournalJournal of Public Economics
Volume147
DOIs
Publication statusPublished - 1 Mar 2017
Externally publishedYes

Bibliographical note

Publisher Copyright:
© 2016 Elsevier B.V.

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