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Supply Response Under Proportional Profits Taxation

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  • John Quiggin

Abstract

A striking result in the theory of the competitive firm under certainty is the proposition that a proportional profits tax (with full offsets for losses) will have no impact on optimal output. This result does not apply under uncertainty. It is shown that, under constant or increasing returns to scale, a proportional profits tax will yield an unambiguous expansion in output. The same result is shown to hold for the more general rank-dependent expected utility (RDEU) model.

Suggested Citation

  • John Quiggin, 1991. "Supply Response Under Proportional Profits Taxation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(1), pages 36-39.
    • Handle: RePEc:oup:ajagec:v:73:y:1991:i:1:p:36-39.
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    File URL: http://hdl.handle.net/10.2307/1242881
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    Cited by:

    1. Woodward, Richard T., 1998. "Should Agricultural And Resource Economists Care That The Subjective Expected Utility Hypothesis Is False?," 1998 Annual meeting, August 2-5, Salt Lake City, UT 20941, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Karagiannis, Giannis, 1999. "Proportional Profit Taxes And Resource Management Under Production Uncertainty," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 24(2), pages 1-11, December.
    3. Shaw, W. Douglass & Woodward, Richard T., 2008. "Why environmental and resource economists should care about non-expected utility models," Resource and Energy Economics, Elsevier, vol. 30(1), pages 66-89, January.
    4. Picazo-Tadeo, Andres J. & Reig-Martinez, Ernest, 2007. "Farmers' costs of environmental regulation: Reducing the consumption of nitrogen in citrus farming," Economic Modelling, Elsevier, vol. 24(2), pages 312-328, March.

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