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Relative Efficiency of AD Valorem and Unit Taxes: The Case of Endogenous Quality

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  • Liqun Liu
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    Abstract

    This article studies the relative efficiency of unit and ad valorem taxes in a competitive market in which the quality of product is endogenous. The author finds that the relative efficiency of these two taxes depends on exactly how individuals value the quality of a product. Specifically, the unit tax welfare dominates the ad valorem tax in the “casket” case and the “full-price” case, whereas the ad valorem tax welfare dominates the unit tax in the “lightbulb” case.

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    File URL: http://pfr.sagepub.com/content/31/3/291.abstract
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    Bibliographic Info

    Article provided by in its journal Public Finance Review.

    Volume (Year): 31 (2003)
    Issue (Month): 3 (May)
    Pages: 291-301

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    Handle: RePEc:sae:pubfin:v:31:y:2003:i:3:p:291-301

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    Cited by:
    1. Liu, Liqun, 2011. "The Alchian-Allen theorem and the law of relative demand: The case of multiple quality-differentiable brands," Mathematical Social Sciences, Elsevier, vol. 61(1), pages 52-57, January.
    2. Laszlo Goerke & Frederik Herzberg & Thorsten Upmann, 2012. "Failure of Ad Valorem and Specific Tax Equivalence under Uncertainty," IAAEU Discussion Papers 201205, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).

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