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Taxation and Durable-Goods Monopoly: Does a Current Tax Influence Firm Behavior?

  • Gregory E. Goering

    ()

    (Department of Economics, University of Alaska)

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    A simple two-period linear demand durable-goods monopoly model is analyzed where the firm faces an ad-valorem tax. Unlike previous models, the impact of an expected future tax is not analyzed; rather it is assumed the tax only is levied in the first (current) period. The model shows that such a current tax can dramatically impact the monopolist¡¯s behavior. For example, the analysis reveals that, as long as the product is durable, the firm wishes to concurrently rent and sell in period one if it faces a current ad-valorem tax. This indicates that the current tax policy on durables, separate from any expected future tax, likely also has a strong impact in imperfectly competitive durable-goods markets.

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    File URL: http://www.bapress.ca/ref/ref-2012-3/Taxation%20and%20Durable-Goods%20Monopoly---Does%20a%20Current%20Tax%20Influence%20Firm%20Behavior.pdf
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    Article provided by Better Advances Press, Canada in its journal Review of Economics & Finance.

    Volume (Year): 2 (2012)
    Issue (Month): (August)
    Pages: 20-28

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    Handle: RePEc:bap:journl:120302
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    12. Sam Bucovetsky & John Chilton, 1986. "Concurrent Renting and Selling in a Durable-Goods Monopoly under Threat of Entry," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 261-275, Summer.
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    15. Goering, Gregory E & Boyce, John R, 1996. "Taxation and Market Power When Products Are Durable," Journal of Regulatory Economics, Springer, vol. 9(1), pages 83-94, January.
    16. Driskill Robert & Horowitz Andrew W., 2007. "The Pollution Haven Paradox: Can an Effluent Tax Improve both Profits and Welfare?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 1-18, July.
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