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The Incidence of Non-Linear Consumption Taxes

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  • Clément Carbonnier

    ()
    (THEMA, Universite de Cergy-Pontoise)

Abstract

The present article generalyses economic litterature on consumption tax incidence to general forms of consumption taxes. Previous studies were limited to the cases of per unit and ad valorem taxes. Three main contributions are provided. From a methodological point of view, the elasticity of the tax function is introduced as a new parameter to take the shape of general consumption tax schedules into account in different models of imperfect competition in a tractable manner. From a theoretical point of view, existing results on the difference of incidence of ad valorem and per unit consumption taxes are generalized to non-linear consumption taxes: the larger the elasticity of the tax function the weaker the share of the consumption tax beared by consumers. From anapplied public economic point of view, it is shown how the regulator may put downwards prices on very uncompetitive markets by increasing the elasticity of the consumption tax on a targeted window of producer prices.

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Paper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number 2013-19.

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Date of creation: 2013
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Handle: RePEc:ema:worpap:2013-19

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Keywords: Consumption taxes; Imperfect Competition; Tax Incidence; Efficiency.;

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  1. Delipalla, Sophia & O'Donnell, Owen, 2001. "Estimating tax incidence, market power and market conduct: The European cigarette industry," International Journal of Industrial Organization, Elsevier, vol. 19(6), pages 885-908, May.
  2. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  3. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
  4. ZHELOBODKO, Evgeny & KOKOVIN, Sergey & Parenti, Mathieu & THISSE, Jacques-François, . "Monopolistic competition beyond the constant elasticity of substitution," CORE Discussion Papers RP -2488, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Carbonnier, Clement, 2007. "Who pays sales taxes? Evidence from French VAT reforms, 1987-1999," Journal of Public Economics, Elsevier, vol. 91(5-6), pages 1219-1229, June.
  6. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
  7. Clément Carbonnier, 2011. "Shifting on prices of per unit and ad valorem consumption taxes," Working Papers halshs-00872477, HAL.
  8. Smith, Adam, 1776. "An Inquiry into the Nature and Causes of the Wealth of Nations," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number smith1776.
  9. Clément Carbonnier, 2008. "Differing Price Adjustments to Rises and Falls in VAT Rates: An Empirical Analysis Based on the 1995 and 2000 French Reforms," Economie et Statistique, Institut National de la Statistique et des Etudes Economiques, vol. 413, pages 3-20, November.
  10. Wu, Xin-wang & Zhu, Quan-tao & Sun, Laixiang, 2012. "On equivalence between Cournot competition and the Kreps–Scheinkman game," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 116-125.
  11. Clément Carbonnier, 2011. "Shifting on prices of per unit and ad valorem consumption taxes, estimation on prices of alcoholic beverages in France," THEMA Working Papers 2011-20, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
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