In "Market Power and the Laffer Curve" we characterize the trade-off between consumption tax rates and tax revenue -- the Laffer curve -- while allowing for re-optimization by both consumers and firms with market power. We show that firms with market power respond to an increase (decrease) in the tax rate by decreasing (increasing) their prices. This flattens and shifts the Laffer curve to the right ("Base Response" in the figure). The implications are significant -- limiting government to attain only 14% of the incremental tax revenue predicted under the common assumption of perfect competition. Moreover, the burden of such naive policy falls disproportionately on older, poorer, uneducated, and minority consumers. Upstream collusion exacerbates these effects.

Papers

1. Market Power and the Laffer Curve
(with Eugenio Miravete and Katja Seim)
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Revisions Submitted to Econometrica

2. One Markup to Rule Them All: Taxation by Liquor Pricing Regulation
(with Eugenio Miravete and Katja Seim)
NEW VERSION - DOWNLOAD HERE!

3. Fuel Taxation, Emissions Policy, and Competitive Advantage in the Diffusion of European Diesel Automobiles
(with Eugenio Miravete and Maria J. Moral)
DOWNLOAD Revision Submitted to The RAND Journal of Economics.
Previous Version with Petrin-Seo Estimation: DOWNLOAD

4. Sincerest Form of Flattery? Product Innovation and Imitation in the Automobile Industry
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5. Rules versus Discretion in the Protection of Intellectual Property
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6. The Effects of Coordinating National Patent Policies
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Works in Progress

Innovation, Imitation, and Outsourcing in the U.S. Semiconductor Industry

Beggaring Thy Neighbor? Coordination, Commitment, and Innovation Policy Among Countries

Does Maritime Shipping Provide Equal Access to Global Markets?
(with Simeon Alder)