Taxation and Durable-Goods Monopoly: Does a Current Tax Influence Firm Behavior?

Gregory E. Goering ()
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Gregory E. Goering: Department of Economics, University of Alaska

Review of Economics & Finance, 2012, vol. 2, 20-28

Abstract: A simple two-period linear demand durable-goods monopoly model is analyzed where the firm faces an ad-valorem tax. Unlike previous models, the impact of an expected future tax is not analyzed; rather it is assumed the tax only is levied in the first (current) period. The model shows that such a current tax can dramatically impact the monopolist¡¯s behavior. For example, the analysis reveals that, as long as the product is durable, the firm wishes to concurrently rent and sell in period one if it faces a current ad-valorem tax. This indicates that the current tax policy on durables, separate from any expected future tax, likely also has a strong impact in imperfectly competitive durable-goods markets.

Keywords: Monopoly; Durable-goods; Tax policy; Time-consistency (search for similar items in EconPapers)
JEL-codes: D42 L12 L21 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (1)

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