Imperfect Competition and Indirect Tax Structure in a Deregulated Telecommunications Sector

Abstract

This article uses an applied general equilibrium model to evaluate the relative efficiency of alternative indirect tax structures on the telecommunications sector. The article especially investigates the impact of imperfect competition in the sector’s product market on the efficiency costs of the indirect tax structures. The results show that for a shift from differential capital taxation to uniform capital taxation, the marginal efficiency gains under imperfect competition are 11/2 to 2 times larger than the marginal efficiency gains under perfect competition. The results also show that although a differential capital tax has an efficiency advantage over a differential commodity tax under perfect competition under imperfect competition, a differential commodity tax is more efficient.