Pass-Through as an Economic Tool: Principles of Incidence under Imperfect Competition

62 Pages Posted: 8 Jan 2009 Last revised: 6 Mar 2013

E. Glen Weyl

Microsoft Research; Yale University

Michal Fabinger

University of Tokyo - Graduate School of Economics

Date Written: February 24, 2013

Abstract

We extend five principles of tax incidence under perfect competition to a general model of imperfect competition. The principles cover 1) the independence of physical and economic incidence, the 2) qualitative and 3) quantitative manner in which taxes are split between consumers and producers, 4) the determinants of tax pass-through and 5) the integration of local incidence to determine the overall division of surplus. We show how these principles can be used to simplify and generalize the analysis of a range of economic questions such as the optimal procurement of new markets and the welfare effects of third-degree price discrimination.

Keywords: incidence, pass-through, conduct parameters, oligopoly

JEL Classification: D40, F10, H22

Suggested Citation

Weyl, E. Glen and Fabinger, Michal, Pass-Through as an Economic Tool: Principles of Incidence under Imperfect Competition (February 24, 2013). Journal of Political Economy, Vol. 121, No. 3, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1324426 or http://dx.doi.org/10.2139/ssrn.1324426

Eric Glen Weyl (Contact Author)

Microsoft Research ( email )

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HOME PAGE: http://www.glenweyl.com

Yale University ( email )

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New Haven, CT 06520-8268
United States

Michal Fabinger

University of Tokyo - Graduate School of Economics ( email )

Tokyo
Japan

HOME PAGE: http://sites.google.com/site/fabinger/

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