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Welfare-Enhancing Taxation and Price Discrimination

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  • Anna D'Annunzio
  • Antonio Russo

Abstract

We analyze the effects of commodity taxation in markets where suppliers implement second-degree price discrimination schemes, such as offering different package sizes and quality-differentiated versions of the same product. In these markets, suppliers distort the quantity (or quality) intended for all types of consumers, except for those with the highest marginal willingness to pay. We show that differentiated ad valorem taxes can alleviate this distortion, and thus increase government revenue as well as welfare, provided the tax rate increases with the size (or quality) of the good supplied.

Suggested Citation

  • Anna D'Annunzio & Antonio Russo, 2022. "Welfare-Enhancing Taxation and Price Discrimination," CESifo Working Paper Series 10007, CESifo.
    • Handle: RePEc:ces:ceswps:_10007
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    References listed on IDEAS

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    More about this item

    Keywords

    commodity taxation; tax incidence; price discrimination;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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