Ad valorem versus per unit taxation: a perspective from price signaling

Honglin Li and Xiaolu Liu ()
Additional contact information
Honglin Li: School of Business, University of Wisconsin-Madison
Xiaolu Liu: Renmin University of China

Journal of Economics, 2021, vol. 134, issue 1, No 2, 27-47

Abstract: Abstract This paper compares ad valorem and per unit taxation in the context of price signaling. In the model, a taxation designer chooses between ad valorem and per unit taxation to maximize tax revenues, and a monopoly firm, whose product quality can be either high or low, uses price as a quality signal. The analysis shows that, compared to per unit taxation, ad valorem taxation raises the low-quality firm’s mimicking cost and lowers the high-quality firm’s signaling cost. This leads to higher transaction volumes and tax revenues.

Keywords: Asymmetric information; Price signal; Ad valorem taxation; Per unit taxation; Product quality (search for similar items in EconPapers)
JEL-codes: D4 D82 L1 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s00712-021-00736-w Abstract (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:134:y:2021:i:1:d:10.1007_s00712-021-00736-w

DOI: 10.1007/s00712-021-00736-w

Access Statistics for this article

Journal of Economics is currently edited by Giacomo Corneo

More articles in Journal of Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().