Producers Lose: The Relative Percentage Reductions in Surplus Due to an AD Valorem Commodity Tax

Gregory A. Trandel
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Gregory A. Trandel: University of Georgia

Public Finance Review, 1999, vol. 27, issue 1, 96-104

Abstract: In traditional studies, focusing on price effects, changes in demand and cost parameters cause a tax's incidence to shift between producers and consumers. Recent incidence results focus on changes in producer and consumer surpluses; they show that with linear demand and marginal cost, a specific commodity tax causes each surplus to fall by the same percentage. This note shows that imposing an ad valorem tax on a noncompetitive market (again assuming linearity) always causes producer surplus to fall by a larger percentage than does consumer surplus. As the tax rate rises, the percentage reductions in surplus move toward equality.

Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:27:y:1999:i:1:p:96-104

DOI: 10.1177/109114219902700105

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