Relative Efficiency of AD Valorem and Unit Taxes: The Case of Endogenous Quality

Liqun Liu

Public Finance Review, 2003, vol. 31, issue 3, 291-301

Abstract: This article studies the relative efficiency of unit and ad valorem taxes in a competitive market in which the quality of product is endogenous. The author finds that the relative efficiency of these two taxes depends on exactly how individuals value the quality of a product. Specifically, the unit tax welfare dominates the ad valorem tax in the “casket†case and the “full-price†case, whereas the ad valorem tax welfare dominates the unit tax in the “lightbulb†case.

Date: 2003
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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:31:y:2003:i:3:p:291-301

DOI: 10.1177/1091142103031003004

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