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The optimal structure of commodity taxation in a monopoly with tax avoidance or evasion

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  • Goerke, Laszlo

Abstract

If tax obligations are met, the balanced-budget substitution of an ad valorem tax on output for a specific tax not only raises a monopolist's production, but also represents a Pareto improvement. However, if tax avoidance or evasion is feasible and the marginal costs of such actions decline with the legal tax burden, a monopolist will respond to a balanced-budget substitution of an ad valorem tax for a specific tax by reducing output, while profits remain constant. Therefore, in the presence of tax avoidance or evasion activities a move towards specific taxation can represent a Pareto improvement. --

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Bibliographic Info

Paper provided by University of Tuebingen, Faculty of Economics and Social Sciences in its series University of Tuebingen Working Papers in Economics and Finance with number 8.

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Date of creation: 2011
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Handle: RePEc:zbw:tuewef:8

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Keywords: Ad valorem tax; Monopoly; Output; Tax avoidance; Tax evasion; Specific tax;

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