Per Unit Versus As Valorem Taxes Under Dynamic Monopoly

Luca Bossi

No 703, Working Papers from University of Miami, Department of Economics

Abstract: In the partial equilibrium framework of a static monopoly, ad valorem taxes always Pareto dominate per unit taxes. This paper shows that this result can actually be reversed in a dynamic framework where the government generates an exogenous stream of revenues through the taxation of commodities produced by a dynamic monopoly (i.e. a single producer facing dynamic demands for an inter-temporal good). We show that per unit taxes Pareto dominate ad valorem taxes provided that the per period demands are relatively elastic. We provide a taxonomy concerning the Pareto dominance of the tax systems in this context and numerical examples that support our theoretical results.

Keywords: Dynamic monopoly; per unit taxes; ad valorem taxes (search for similar items in EconPapers)
JEL-codes: D42 H22 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2007-09-27
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Forthcoming: In preparation for submission

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Persistent link: https://EconPapers.repec.org/RePEc:mia:wpaper:0703

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