The Efficiency of Indirect Taxes under Imperfect Competition

Simon Anderson, André de Palma () and Brent Kreider ()

Virginia Economics Online Papers from University of Virginia, Department of Economics

Abstract: This paper considers the relative efficiency of ad valorem and unit taxes in imperfectly competitive markets. We provide a simple proof that ad valorem taxes are welfare-superior to unit taxes in the short run when production costs are identical across firms. The proof covers differentiated products and a wide range of market conduct. Cost asymmetries strengthen the case for ad valorem taxation under Cournot competition, but unit taxation may be welfare-superior under Bertrand competition with product differentiation. Ad valorem taxation is superior with free entry under Cournot competition, but not necessarily under price competition when consumers value variety.

Keywords: Excise tax; unit tax; specific tax; ad valorem tax; tax efficiency; product differentiation; imperfect competition (search for similar items in EconPapers)
JEL-codes: D43 H21 H22 L13 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2000-02
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Citations: View citations in EconPapers (2)

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http://repec.as.virginia.edu/RePEc/vir/virpap/papers/virpap342.pdf (application/pdf)

Related works:
Journal Article: The efficiency of indirect taxes under imperfect competition (2001)
Working Paper: The Efficiency of Indirect Taxes Under Imperfect Competition (2001)
Working Paper: The efficiency of indirect taxes under imperfect competition (1999)
Working Paper: The Efficiency of Indirect Taxes Under Imperfect Competition (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:vir:virpap:342

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