The Optimal Structure of Commodity Taxation in a Monopoly with Tax Avoidance or Evasion

Laszlo Goerke

Public Finance Review, 2012, vol. 40, issue 4, 519-536

Abstract: If tax obligations are met, the balanced-budget substitution of an ad valorem tax on output for a specific tax not only raises a monopolist’s production but also represents a Pareto improvement. However, if tax avoidance or evasion is feasible and the marginal costs of such actions decline with the legal tax burden, a monopolist will respond to a balanced-budget substitution of an ad valorem tax for a specific tax by reducing output, while profits remain constant. Therefore, in the presence of tax avoidance or evasion activities, a move toward specific taxation can represent a Pareto improvement.

Keywords: ad valorem tax; monopoly; output; tax avoidance; tax evasion; specific tax (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (4)

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Working Paper: The optimal structure of commodity taxation in a monopoly with tax avoidance or evasion (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:40:y:2012:i:4:p:519-536

DOI: 10.1177/1091142111422440

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