Welfare-Enhancing Taxation and Price Discrimination

Anna D'Annunzio and Antonio Russo

No 10007, CESifo Working Paper Series from CESifo

Abstract: We analyze the effects of commodity taxation in markets where suppliers implement second-degree price discrimination schemes, such as offering different package sizes and quality-differentiated versions of the same product. In these markets, suppliers distort the quantity (or quality) intended for all types of consumers, except for those with the highest marginal willingness to pay. We show that differentiated ad valorem taxes can alleviate this distortion, and thus increase government revenue as well as welfare, provided the tax rate increases with the size (or quality) of the good supplied.

Keywords: commodity taxation; tax incidence; price discrimination (search for similar items in EconPapers)
JEL-codes: D40 H21 H22 L10 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-com, nep-mic, nep-pbe and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_10007

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