On Taxation Pass-Through for a Monopoly Firm

Rabah AMIR, Isabelle Maret and Michael Troge

Working Papers of BETA from Bureau d'Economie Théorique et Appliquée, ULP, Strasbourg

Abstract: This paper investigates the pass-through of an excise tax imposed on a monopoly firm with constant marginal cost. The optimal price increases as tax increases for any demand function. Tax pass-through is globally under or in excess of 100% according as the direct demand function is log-concave or log-convex. The analysis relies on supermodular optimization and delivers conclusions based on minimal su¢cient assumptions in a simple, broadly accessible and self-contained framework. Further results allow for mixed conditions that provide precise and local determination of pass-through. Several illustrative examples are given. Policy conclusions relating to the relative wisdom of taxing high versus low cost monopoly firms are drawn from the results.

New Economics Papers: this item is included in nep-acc, nep-ind and nep-pub
Date: 2004
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Related works:
Working Paper: On taxation pass-through for a monopoly firm (2004)
Journal Article: On Taxation Pass-Through for a Monopoly Firm (2004)
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Persistent link: http://EconPapers.repec.org/RePEc:ulp:sbbeta:2004-10

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