Ad Valorem Taxation in a Multiproduct Monopoly

Anna D'Annunzio and Antonio Russo

No 9881, CESifo Working Paper Series from CESifo

Abstract: We study the pass-through of ad valorem taxes with a multiproduct monopolist. We characterize two mechanisms whereby an ad valorem tax on one good reduces all prices (Edgeworth’s paradox), depending on the goods being substitutes or complements. We also find that the tax can increase the supply of all goods. Hence, consumer surplus and welfare can increase even when the goods are underprovided compared to the social optimum. We provide several applications where these results hold. Our findings indicate that in a multiproduct setting the effects of unit and ad valorem taxes on market outcomes and welfare are fundamentally different.

Keywords: commodity taxation; tax incidence; multi-product firms; monopoly (search for similar items in EconPapers)
JEL-codes: D42 H21 H22 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-com, nep-mic, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_9881

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