Welfare-enhancing taxation and price discrimination

Anna D’Annunzio () and Antonio Russo ()
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Anna D’Annunzio: TBS Business School
Antonio Russo: Department of Economics, University of Sheffield and CESifo

No 2023001, Working Papers from The University of Sheffield, Department of Economics

Abstract: We study commodity taxation in markets where suppliers implement second-degree price discrimination, by offering different package sizes or quality-differentiated versions of a product. In these markets, suppliers distort the quantity (or quality) intended for all types of consumers, except for those with the highest marginal willingness to pay. We show that differentiated ad valorem taxes can alleviate this distortion, and thus increase government revenue as well as welfare, provided the tax rate increases with the size of the package (or quality of the version) of the good supplied.

Keywords: Commodity taxation; tax incidence; price discrimination (search for similar items in EconPapers)
JEL-codes: D4 H21 H22 L1 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2023-01
New Economics Papers: this item is included in nep-com, nep-mic, nep-pbe and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:shf:wpaper:2023001

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