Per Unit Versus As Valorem Taxes Under Dynamic Monopoly
AbstractIn the partial equilibrium framework of a static monopoly, ad valorem taxes always Pareto dominate per unit taxes. This paper shows that this result can actually be reversed in a dynamic framework where the government generates an exogenous stream of revenues through the taxation of commodities produced by a dynamic monopoly (i.e. a single producer facing dynamic demands for an intertemporal good). We show that per unit taxes Pareto dominate ad valorem taxes provided that the per period demands are relatively elastic. We provide a taxonomy concerning the Pareto dominance of the tax systems in this context and numerical examples that support our theoretical results.
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Bibliographic InfoPaper provided by University of Miami, Department of Economics in its series Working Papers with number 0703.
Length: 17 pages
Date of creation: 27 Sep 2007
Date of revision:
Publication status: Forthcoming: In preparation for submission
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Dynamic monopoly; per unit taxes; ad valorem taxes;
Find related papers by JEL classification:
- H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
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