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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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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
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Handle: RePEc:ces:ceswps:_1635

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

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References

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  1. Crampes, Claude & Haritchabalet, Carole & Jullien, Bruno, 2006. "Advertising, Competition and Entry in Media Industries," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 374, Institut d'Économie Industrielle (IDEI), Toulouse.
  2. Sofia Delipalla & Michael Keen, 1991. "The Comparison Between Ad Valorem and Specific Taxation under Imperfect Competition," Working Papers, Queen's University, Department of Economics 821, Queen's University, Department of Economics.
  3. Alan J. Auerbach & Roger H. Gordon, 2002. "Taxation of Financial Services under a VAT," American Economic Review, American Economic Association, American Economic Association, vol. 92(2), pages 411-416, May.
  4. Simon P. Anderson & Andre de Palma & Brent Kreider, 2000. "The Efficiency of Indirect Taxes under Imperfect Competition," Virginia Economics Online Papers 342, University of Virginia, Department of Economics.
  5. S. P. Anderson & A. de Palma & B. Kreider, 1999. "Tax incidence in differentiated product oligopoly," THEMA Working Papers 99-10, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  6. Gilbert E. Metcalf, 2006. "Tax Incidence," Discussion Papers Series, Department of Economics, Tufts University, Department of Economics, Tufts University 0607, Department of Economics, Tufts University.
  7. Rochet, Jean-Charles & Tirole, Jean, 2003. "Platform Competition in Two-Sided Markets," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 152, Institut d'Économie Industrielle (IDEI), Toulouse.
  8. Dierickx, I. & Matutes, C. & Neven, D., 1988. "Indirect taxation and cournot equilibrium," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 6(3), pages 385-399.
  9. Creedy, John, 1988. " Wicksell on Edgeworth's Tax Paradox," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 90(1), pages 101-12.
  10. Mark Armstrong, 2005. "Competition in Two-Sided Markets," Industrial Organization, EconWPA 0505009, EconWPA.
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Cited by:
  1. Heijdra, Ben J. & Ligthart, Jenny E., 2010. "The Transitional Dynamics Of Fiscal Policy In Small Open Economies," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 14(01), pages 1-28, February.

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