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The comparison between ad valorem and specific taxation under imperfect competition

  • Delipalla, Sofia
  • Keen, Michael

This paper compares ad valorem and specific taxation in two models of oligopoly, with and without free entry. Predominantly ad valorem taxation implies a relative low consumer price, high tax revenue and (when entry is precluded) low profits. Ad valorem taxation dominates specific from the welfare perspective: the set of circumstances under which (with free entry) specific taxation raises welfare is a strict subset of that in which ad valorem taxation is welfare-improving, and in both models the maximization of consumer welfare subject to a binding revenue constraint requires maximum reliance on ad valorem taxation.

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File URL: http://www.sciencedirect.com/science/article/B6V76-45BCN7Y-D/2/aaa1e67a9ccfe1c5946ecf8187c0e301
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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 49 (1992)
Issue (Month): 3 (December)
Pages: 351-367

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Handle: RePEc:eee:pubeco:v:49:y:1992:i:3:p:351-367
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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