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Income Effects and the Welfare Consequences of Tax in Differentiated Product Oligopoly

Nesheim, LP; Griffith, R; O'Connell, M; (2018) Income Effects and the Welfare Consequences of Tax in Differentiated Product Oligopoly. Quantitative Economics (In press). Green open access

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Abstract

Random utility models are widely used to study consumer choice. The vast majority of applications assume utility is linear in consumption of the outside good, which imposes that total expenditure on the subset of goods of interest does not affect demand for inside goods and restricts demand curvature and passthrough. We show that relaxing these restrictions can be important, particularly if one is interested in the distributional effects of a policy change, even in a market for a small budget share product category. We consider the use of tax policy to lower fat consumption and show that a specific (per unit) tax results in larger reductions than an ad valorem tax, but at greater cost to consumers.

Type: Article
Title: Income Effects and the Welfare Consequences of Tax in Differentiated Product Oligopoly
Open access status: An open access version is available from UCL Discovery
Publisher version: http://qeconomics.org/ojs/index.php/qe
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: Income effects, compensating variation, demand estimation, oligopoly, pass-through, fat tax
UCL classification: UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of SandHS > Dept of Economics
URI: http://discovery.ucl.ac.uk/id/eprint/10042657
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