The Comparison Between Ad Valorem and Specific Taxation under Imperfect Competition

Sofia Delipalla and Michael Keen

No 821, Working Paper from Economics Department, Queen's University

Abstract: This paper compares ad valorem and specific taxation in two models of oligopoly, with and without free entry. Predominantly ad valorem taxation implies a relative low consumer price, high tax revenue and (when entry is precluded) low profits. Ad valorem taxation dominates specific from the welfare perspective: the set of circumstances under which (with free entry) specific taxation raises welfare is a strict subset of that in which ad valorem taxation is welfare-improving, and in both models the maximization of consumer welfare subject to a binding revenue constraint requires maximum reliance on ad valorem taxation.

Date: 1991-03
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http://qed.econ.queensu.ca/working_papers/papers/qed_wp_821.pdf First version 1991 (application/pdf)

Related works:
Journal Article: The comparison between ad valorem and specific taxation under imperfect competition (1992)
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