| Previous analyses predict significant efficiency losses from the continued differential taxation of the local telephone industry in an increasingly competitive industry. But these analyses have all been qualitative in nature and implicitly assume perfectly competitive product and factor markets. Because analytical solutions quickly become intractable, previous studies of taxation with imperfect competition necessarily use simplified models of an industry--one tax at a time, a single factor, Leontief representation of inter-industry structure. This paper uses a computable general equilibrium tax model of the local telephone industry to estimate the incidence and efficiency effects of local telephone taxes. A numerical solution allows the incorporation of more real world features of an economy and the industry under investigation--multiple existing taxes, multiple factors, and increasing returns to scale production functions which allows substitutability between intermediate inputs.;I calibrate the model for Georgia for 1992 using input-output tables from the 1992 IMPLAN database, local telephone data from the FCC's Automated Reporting Management Information System (ARMIS), and published tax data (e.g., Georgia Department of Revenue Statistical Report).;The results suggest that the order of magnitudes of the efficiency losses due to differentially higher capital taxation of the telecommunications industry is large relative to the size of the telecommunications sector in the Georgia economy. The results further suggest that, when imperfect competition is taken into account, the size of the efficiency losses can be many times larger than for the perfect competition case. Finally, the results suggest that the differentially higher capital taxation changes industry structure by reducing markup in a monopoly, and increasing industry concentration in a monopolistically competitive market. |
