The legal incidence of ad valorem taxes matters

Wilfried Pauwels () and Fred Schroyen ()
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Wilfried Pauwels: University of Antwerp
Fred Schroyen: NHH Norwegian School of Economics

Journal of Economics, 2024, vol. 142, issue 2, No 3, 199-211

Abstract: Abstract It is well known that, for a specific tax, its economic incidence does not depend on which side of the market has the legal obligation to pay the tax. In this paper, we show that, for an ad valorem tax, this legal incidence does matter for the economic incidence. In particular, when a government imposes an ad valorem tax rate on the sale of a commodity, the resulting reduction in the market equilibrium level of sales will be larger when sellers are obliged to pay the tax than when buyers are obliged to pay the tax.

Keywords: Economic incidence; Legal incidence; Statutory incidence; Ad valorem taxes; Invariance theorem (search for similar items in EconPapers)
JEL-codes: H22 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:142:y:2024:i:2:d:10.1007_s00712-024-00863-0

DOI: 10.1007/s00712-024-00863-0

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