CoPS/IMPACT Working Paper Number G-359

Title: Measuring the Deadweight Costs of Corporate Income Tax Thresholds under Monopolistic Competition

Authors: Jason Nassios And Janine Dixon

Abstract

This paper extends the model of Dixon et al. (2004) by introducing taxes on non-labour income with thresholds into a simple firm-size framework. The modification allows analysis of how threshold-based corporate tax provisions distort firms' output decisions and create deadweight losses. By linking firm counts and average costs to the presence of a tax threshold, the model quantifies the efficiency costs associated with discontinuities in the effective tax schedule. The framework provides a transparent way to assess how threshold policies influence aggregate efficiency without relying on a full general equilibrium setting.

JEL classification: H21, H22, H25, L11

Keywords: Monopolistic competition; Firm entry and scale; Tax efficiency; Tax incidence; Corporate income tax; Thresholds

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