Optimal fiscal policy in sunspot-driven oligopolistic economies

Rodolphe dos Santos Ferreira, Frédéric Dufourt

Research output: Contribution to journalArticlepeer-review


Economies with oligopolistic markets are prone to inefficient sunspot fluctuations triggered by autonomous changes in firms equilibrium conjectures. A well-designed taxation-subsidization scheme can eliminate these fluctuations by coordinating firms in each sector on a single equilibrium, left unaffected. The optimal taxation scheme must select the number of active firms that makes the best trade-off (in terms of consumer welfare) between the markup and the scale inefficiency distortions. Implementing such stabilization policy leads to significant welfare gains, attributable to an “efficient stabilization effect,” typically ignored in usual computations of the welfare costs of fluctuations.
Original languageEnglish
Pages (from-to)620-638
Number of pages19
JournalJournal of Public Economic Theory
Issue number3
Publication statusPublished - Jun 2017
Externally publishedYes


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