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The Optimal Structure of Commodity Taxation in a Monopoly with Tax Avoidance or Evasion

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  • Laszlo Goerke

    ()
    (IAAEG – Universität Trier, Trier, Germany
    IZA, Bonn, Germany
    CESifo, Munich, Germany)

Abstract

If tax obligations are met, the balanced-budget substitution of an ad valorem tax on output for a specific tax not only raises a monopolist’s production but also represents a Pareto improvement. However, if tax avoidance or evasion is feasible and the marginal costs of such actions decline with the legal tax burden, a monopolist will respond to a balanced-budget substitution of an ad valorem tax for a specific tax by reducing output, while profits remain constant. Therefore, in the presence of tax avoidance or evasion activities, a move toward specific taxation can represent a Pareto improvement.

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Bibliographic Info

Article provided by in its journal Public Finance Review.

Volume (Year): 40 (2012)
Issue (Month): 4 (July)
Pages: 519-536

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Handle: RePEc:sae:pubfin:v:40:y:2012:i:4:p:519-536

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Keywords: ad valorem tax; monopoly; output; tax avoidance; tax evasion; specific tax;

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