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Non-Equivalence Of Specific And Ad Valorem Taxation In The Competitive Market With Tax Evasion

Author

Listed:
  • HUANG, CHE-CHIANG
  • UENG, K.L. GLEN
  • HU, JIN-LI

Abstract

The well-known equivalence between specific and ad valorem taxation in competitive markets may not hold in the presence of tax evasion. Evading specific taxes has to take place via concealing quantities sold, whereas evading ad valorem taxes can take place via concealing selling prices as well as quantities sold. We show that in the competitive market (i) this difference could make the equivalence of these two taxes break down, and (ii) specific taxation may be superior to ad valorem taxation if it causes firms to channel fewer resources into tax evasion, given other things being equal.

Suggested Citation

  • Huang, Che-Chiang & Ueng, K.L. Glen & Hu, Jin-Li, 2017. "Non-Equivalence Of Specific And Ad Valorem Taxation In The Competitive Market With Tax Evasion," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 58(1), pages 41-51, June.
    • Handle: RePEc:hit:hitjec:v:58:y:2017:i:1:p:41-51
    DOI: 10.15057/28613
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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