Ad valorem taxation in a multiproduct monopoly

Anna D’annunzio and Antonio Russo ()
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Anna D’annunzio: Università degli Studi di Roma Tor Vergata [Roma, Italia] = University of Rome Tor Vergata [Rome, Italy] = Université de Rome Tor Vergata [Rome, Italie]
Antonio Russo: IMT-BS - Institut Mines-Télécom Business School - IMT - Institut Mines-Télécom [Paris]

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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.

Date: 2025-11-27
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Published in RAND Journal of Economics, inPress, ⟨10.1111/1756-2171.70025⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05385869

DOI: 10.1111/1756-2171.70025

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