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Competition in Unit vs. Ad Valorem Taxes

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Author Info
Ben Lockwood ()

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Abstract

This paper shows that in a standard model of tax competition, the Nash equilibrium in capital taxes depends on whether these taxes are unit (as assumed in the literature) or ad valorem (as in reality). In a symmetric version of the model, general results are established: taxes and public good provision are both higher, and residents in all countries are better off, when countries compete in unit taxes, as opposed to ad valorem taxes. However, the difference in equilibrium outcomes is negligible when the number of countries is large.

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Publisher Info
Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 11 (2004)
Issue (Month): 6 (November)
Pages: 763-772
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Handle: RePEc:kap:itaxpf:v:11:y:2004:i:6:p:763-772

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Wilson, John Douglas, 1991. "Tax competition with interregional differences in factor endowments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 423-451, November. [Downloadable!] (restricted)
  2. Lockwood, Ben & Wong, Kar-yiu, 2000. "Specific and ad valorem tariffs are not equivalent in trade wars," Journal of International Economics, Elsevier, vol. 52(1), pages 183-195, October. [Downloadable!] (restricted)
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  3. Anderson, Simon & de Palma, Andre & Kreider, Brent, 2002. "The Efficiency of Indirect Taxes under Imperfect Competition," Staff General Research Papers 5203, Iowa State University, Department of Economics.
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  4. Anderson, Simon P. & de Palma, Andre & Kreider, Brent, 2001. "Tax incidence in differentiated product oligopoly," Journal of Public Economics, Elsevier, vol. 81(2), pages 173-192, August. [Downloadable!] (restricted)
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  5. Wildasin, David E., 1988. "Nash equilibria in models of fiscal competition," Journal of Public Economics, Elsevier, vol. 35(2), pages 229-240, March. [Downloadable!] (restricted)
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  6. Laussel, Didier & Le Breton, Michel, 1998. "Existence of Nash equilibria in fiscal competition models," Regional Science and Urban Economics, Elsevier, vol. 28(3), pages 283-296, May. [Downloadable!] (restricted)
  7. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September. [Downloadable!] (restricted)
  8. Skeath, Susan E. & Trandel, Gregory A., 1994. "A Pareto comparison of ad valorem and unit taxes in noncompetitive environments," Journal of Public Economics, Elsevier, vol. 53(1), pages 53-71, January. [Downloadable!] (restricted)
  9. Delipalla, Sofia & Keen, Michael, 1992. "The comparison between ad valorem and specific taxation under imperfect competition," Journal of Public Economics, Elsevier, vol. 49(3), pages 351-367, December. [Downloadable!] (restricted)
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  10. Wildasin, David E., 1991. "Some rudimetary 'duopolity' theory," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 393-421, November. [Downloadable!] (restricted)
  11. Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, vol. 19(3), pages 356-370, May. [Downloadable!] (restricted)
  12. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Blackorby, Charles & Murty, Sushama, 2007. "Unit Versus Ad Valorem Taxes : The Private Ownership of Monopoly In General Equilibrium," The Warwick Economics Research Paper Series (TWERPS) 797, University of Warwick, Department of Economics. [Downloadable!]
  2. Blackorby, Charles & Murty, Sushama, 2006. "Unit Versus Ad Valorem Taxes : Monopoly In General Equilibrium," The Warwick Economics Research Paper Series (TWERPS) 761, University of Warwick, Department of Economics. [Downloadable!]
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