Taxation and Market Power

Taxation and Market Power

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Article ID: iaor201521972
Volume: 47
Issue: 1
Start Page Number: 173
End Page Number: 202
Publication Date: Feb 2014
Journal: Canadian Journal of Economics/Revue canadienne d'conomique
Authors: , ,
Keywords: economics, behaviour
Abstract:

We analyze the incidence and welfare effects of unit sales tax increases in experimental monopoly and Bertrand markets. We find, in line with economic theory, that firms with no market power are able to shift a high share of the tax burden to consumers, independent of whether buyers are automated or human players. In monopoly markets, a monopolist bears a large share of the burden of a tax increase. With human buyers, however, this share is smaller than with automated buyers, as the presence of human buyers constrains the pricing behaviour of a monopolist. Several control treatments corroborate this finding.

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