Commodity Taxation in a Differentiated Oligopoly

Helmuth Cremer and Jacques Thisse

International Economic Review, 1994, vol. 35, issue 3, 613-33

Abstract: The authors introduce commodity taxation into a vertical differentiation model with endogenous product selection. They show that a uniform ad valorem tax lowers both qualities, distorts the allocation of consumers between firms, and lowers the consumer prices of both variants. A small uniform tax is always welfare-improving over the no-tax equilibrium. A differentiation of tax rates may or may not be desirable on welfare grounds. If a welfare improvement is possible through a nonuniform tax, it is always the high-quality variant that must be taxed at a higher rate. Copyright 1994 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1994
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Related works:
Working Paper: Commodity taxation in a differentiated oligopoly (1994)
Working Paper: Commodity Taxation in a Differentiated Oligopoly (1993)
Working Paper: Commodity taxation in a differentiated oligopoly (1992)
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