A welfare comparison of ad valorem and unit tax regimes

Magnus Hoffmann and Marco Runkel ()

International Tax and Public Finance, 2016, vol. 23, issue 1, 140-157

Abstract: This paper strives to merge two strands of the literature. The first group of papers compares ad valorem and unit taxes in a tax competition framework in terms of welfare. The second group of papers regards capital income taxes as a conjunction of taxes on pure profits and taxes on capital income. We find that, given decreasing returns to scale, there always exists a level of the share of deductible capital costs strictly smaller than one, such that for all values larger than this threshold, an ad valorem tax regime unambiguously Pareto-dominates a unit tax regime. Copyright Springer Science+Business Media New York 2016

Keywords: Tax competition; Unit taxes; Ad valorem taxes; H20; H21; H77 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1007/s10797-015-9355-2

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