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Do Consumers Buy Less of a Taxed Good?

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Author Info

  • Hans Jarle Kind
  • Marko Köthenbürger
  • Guttorm Schjelderup

Abstract

This paper shows that consumers may buy more of a taxed good if it is sold by a two-sided platform firm. Two-sided platform industries serve distinct customer groups that are connected through interdependent demand, and include major businesses such as the media industry (newspapers/magazines and advertisers), banking (cardholder and merchant), and the software industry (users and application developers). The paper compares ad-valorem and specific taxes and shows that they may have opposite effects on quantities sold, and that the ad-valorem tax - the most commonly used tax throughout the OECD - has effects on prices and quantities not previously recognized.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2005/wp-cesifo-2005-12/cesifo1_wp1635.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1635.

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Date of creation: 2005
Date of revision:
Handle: RePEc:ces:ceswps:_1635

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Related research

Keywords: two-sided markets; ad-valorem taxes; specific taxes;

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References

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  1. 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.
  2. Anderson, Simon & de Palma, Andre & Kreider, Brent, 2001. "The Efficiency of Indirect Taxes Under Imperfect Competition," Staff General Research Papers 5203, Iowa State University, Department of Economics.
  3. Jean-Charles Rochet & Jean Tirole, 2003. "Platform Competition in Two-Sided Markets," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 990-1029, 06.
  4. Dierickx, I. & Matutes, C. & Neven, D., 1988. "Indirect taxation and cournot equilibrium," International Journal of Industrial Organization, Elsevier, vol. 6(3), pages 385-399.
  5. Anderson, Simon & de Palma, Andre & Kreider, Brent, 2001. "Tax Incidence in Differentiated Product Oligopoly," Staff General Research Papers 5202, Iowa State University, Department of Economics.
  6. Gilbert E. Metcalf, 2006. "Tax Incidence," Discussion Papers Series, Department of Economics, Tufts University 0607, Department of Economics, Tufts University.
    • Fullerton, Don & Metcalf, Gilbert E., 2002. "Tax incidence," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 26, pages 1787-1872 Elsevier.
  7. Creedy, John, 1988. " Wicksell on Edgeworth's Tax Paradox," Scandinavian Journal of Economics, Wiley Blackwell, vol. 90(1), pages 101-12.
  8. Alan J. Auerbach & Roger H. Gordon, 2002. "Taxation of Financial Services under a VAT," American Economic Review, American Economic Association, vol. 92(2), pages 411-416, May.
  9. Claude Crampes & Carole Haritchabalet & Bruno Jullien, 2005. "Advertising, Competition and Entry in Media Industries," CESifo Working Paper Series 1591, CESifo Group Munich.
  10. Mark Armstrong, 2006. "Competition in two‐sided markets," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 668-691, 09.
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Cited by:
  1. Heijdra, B.J. & Ligthart, J.E., 2006. "The Transitional Dynamics of Fiscal Policy in Small Open Economies," Open Access publications from Tilburg University urn:nbn:nl:ui:12-199394, Tilburg University.

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