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> In a perfectly competitive market corporate profits are zero and it all comes out of the consumer. No, the determinant of tax incidence is price elasticity,

> In a perfectly competitive market corporate profits are zero and it all comes out of the consumer. No, the determinant of tax incidence is price elasticity, which is orthogonal to competitiveness of a market. [1] Oil is interesting because it is somewhat price inelastic both for demand and supply. People's ability to stop driving is limited in the medium term, but also many suppliers of oil aren't capable of completely exiting the oil business. In practice, I suspect the incidence is in fact roughly 50/50 if applied in a huge country like the United States (the incidence would be much on consumers in smaller markets). [1] https://en.wikipedia.org/wiki/Tax_incidence https://en.wikipedia.org/wiki/Tax_incidence

jessriedel 11y ago
No, you're missing the part where corporate profits are zero in a perfectly competitive market. https://en.wikipedia.org/wiki/Perfect_competition#Profit https://en.wikipedia.org/wiki/Perfect_competition#Profit If corporations always operate at revenues=expenditures, then the entire tax must fall on the buyer in the long run. The price inelasticities you're talking about are only in the short run.
- morgante 11y ago
  > you're missing the part where corporate profits are zero in a perfectly competitive market. I'm well aware of what defines a perfectly competitive market. > If corporations always operate at revenues=expenditure That's not what zero economic profit means. Taxes can also come out of the owner's opportunity costs if the have low elasticity of supply.
  - jessriedel 11y ago
    > I'm well aware of what defines a perfectly competitive market. Then you should have addressed that point in your first reply to randyrand. It was the entire point of his comment. > That's not what zero economic profit means. If you're just talking about the difference between economic profit and accounting profit, I'm well aware of the difference. My point stands. > Taxes can also come out of the owner's opportunity costs if the have low elasticity of supply. Not in the long, as I qualified. In the long run, the only thing owners of capital bring to the table is pure capital itself, and they will simply redistribute capital to the next most profitable venture, which in a large economy is essentially identical.

jessriedel 11y ago

No, you're missing the part where corporate profits are zero in a perfectly competitive market. https://en.wikipedia.org/wiki/Perfect_competition#Profit https://en.wikipedia.org/wiki/Perfect_competition#Profit If corporations always operate at revenues=expenditures, then the entire tax must fall on the buyer in the long run. The price inelasticities you're talking about are only in the short run.

morgante 11y ago
> you're missing the part where corporate profits are zero in a perfectly competitive market. I'm well aware of what defines a perfectly competitive market. > If corporations always operate at revenues=expenditure That's not what zero economic profit means. Taxes can also come out of the owner's opportunity costs if the have low elasticity of supply.
- jessriedel 11y ago
  > I'm well aware of what defines a perfectly competitive market. Then you should have addressed that point in your first reply to randyrand. It was the entire point of his comment. > That's not what zero economic profit means. If you're just talking about the difference between economic profit and accounting profit, I'm well aware of the difference. My point stands. > Taxes can also come out of the owner's opportunity costs if the have low elasticity of supply. Not in the long, as I qualified. In the long run, the only thing owners of capital bring to the table is pure capital itself, and they will simply redistribute capital to the next most profitable venture, which in a large economy is essentially identical.