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The balance between specific and ad valorem taxation

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  • Michael Keen

Abstract

A recurring issue in indirect tax design — most obviously, but not only, for goods traditionally subject to heavy excises — is the appropriate balance between specific and ad valorem taxation. Recent work has developed new perspectives on the issue, which is also one of the oldest in the formal study of public finance. This paper provides a broadly non-technical account of the central considerations that arise in choosing the balance between specific and ad valorem taxation, reviewing and somewhat extending the lessons of theory and experience. There emerge clear presumptions as to the relative effects of the two kinds of tax on such attributes as price, profits, product quality and variety. But the socially optimal balance between them is likely to be quite sensitive to the characteristics of the market at issue.

Suggested Citation

  • Michael Keen, 1998. "The balance between specific and ad valorem taxation," Fiscal Studies, Institute for Fiscal Studies, vol. 19(1), pages 1-37, February.
  • Handle: RePEc:ifs:fistud:v:19:y:1998:i:1:p:1-37
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    References listed on IDEAS

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    1. Myles, Gareth D, 1987. "Some Implications of Quality Differentials for Optimal Taxation," Economic Journal, Royal Economic Society, vol. 98(390), pages 148-160, Supplemen.
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    10. Dickie, M. & Trandel, G.A., 1993. "Comparing Specific and Ad Vaslorem Pigouvian Taxes and Output Quotas," Papers 431, Georgia - College of Business Administration, Department of Economics.
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    13. Skeath, Susan E. & Trandel, Gregory A., 1994. "A Pareto comparison of ad valorem and unit taxes in noncompetitive environments," Journal of Public Economics, Elsevier, vol. 53(1), pages 53-71, January.
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    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence

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