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Estimating structural demand and supply models using tax rates as instruments

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  • Dearing, Adam

Abstract

We show that variation in a single, generic tax rate can be used to identify and estimate single-good structural models that include general demand and supply specifications and (potential) market power. Our results generalize those of Zoutman et al. (2018a), who consider using a single ad valorem tax rate to identify and estimate constant-elasticity demand and supply functions under perfect competition. We also consider identification and estimation in multiple-good settings, including cases where the number of goods exceeds the number of independently-shifting tax rates. Estimation is straightforward and can be performed via two sequential GMM estimates.

Suggested Citation

  • Dearing, Adam, 2022. "Estimating structural demand and supply models using tax rates as instruments," Journal of Public Economics, Elsevier, vol. 205(C).
    • Handle: RePEc:eee:pubeco:v:205:y:2022:i:c:s0047272721001973
    DOI: 10.1016/j.jpubeco.2021.104561
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    References listed on IDEAS

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