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Product Quality and Taxation: a Reconciliation

Author

Listed:
  • Cecil E. Bohanon

    (Ball State University)

  • T. Norman Van Cott

    (Ball State University)

Abstract

Within the last few years, two articles in this journal (one ours) have discussed the relationship between product quality, excise taxes, and tax revenue. The articles are marked by seemingly contradictory results regarding the effect specific taxes and ad valorem taxes have on product quality. This article reconciles the contradiction. The authors show that the difference stems from opposite assumptions about the substitutability between physical units and their quality attributes. For all intermediate substitutabilities, the tax-quality relationship of this article is relevant for specific taxes, while the tax-quality relationship of the other article is relevant for ad valorem taxes.

Suggested Citation

  • Cecil E. Bohanon & T. Norman Van Cott, 1991. "Product Quality and Taxation: a Reconciliation," Public Finance Review, , vol. 19(2), pages 233-237, April.
    • Handle: RePEc:sae:pubfin:v:19:y:1991:i:2:p:233-237
    DOI: 10.1177/109114219101900206
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    References listed on IDEAS

    as
    1. John Kay & Michael Keen, 1987. "Commodity Taxation for Maximum Revenue," Public Finance Review, , vol. 15(4), pages 371-385, October.
    2. Kaempfer, William H & Brastow, Raymond T, 1985. "The Effect of Unit Fees on the Consumption of Quality," Economic Inquiry, Western Economic Association International, vol. 23(2), pages 341-348, April.
    3. Barzel, Yoram, 1976. "An Alternative Approach to the Analysis of Taxation," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1177-1197, December.
    4. Cecil E. Bohanon & T. Norman Van Cott, 1984. "Specific Taxes, Product Quality, and Rate-Revenue Analysis," Public Finance Review, , vol. 12(4), pages 500-511, October.
    5. Umbeck, John, 1980. "Shipping the Good Apples Out: Some Ambiguities in the Interpretation of "Fixed Charge"," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 199-208, February.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Sophia Delipalla & Owen O'Donnell, 1998. "The Comparison Between Ad Valorem and Specific Taxation under Imperfect Competition: Evidence from the European Cigarette Industry," Studies in Economics 9802, School of Economics, University of Kent.
    2. Liqun Liu, 2003. "Relative Efficiency of AD Valorem and Unit Taxes: The Case of Endogenous Quality," Public Finance Review, , vol. 31(3), pages 291-301, May.
    3. Blum, Bianca, 2018. "Ausgestaltung einer Steuerpolitik zur Förderung von LED-Beleuchtung," The Constitutional Economics Network Working Papers 01-2018, University of Freiburg, Department of Economic Policy and Constitutional Economic Theory.
    4. Liqun Liu & Thomas R. Saving, 2005. "Market Substitution and the Pareto Dominance of Ad Valorem Taxation," Southern Economic Journal, John Wiley & Sons, vol. 72(2), pages 463-481, October.
    5. Liberati, Paolo & Paradiso, Massimo, 2014. "Sulla composizione dell'accisa sui tabacchi: un'ipotesi di modifica del sistema di tassazione in Italia [On the structure of the excise taxes on tobacco: A reform proposal for Italy]," MPRA Paper 55906, University Library of Munich, Germany.
    6. Marko Primorac & Silvija Vlah Jeric, 2017. "The Structure of Cigarette Excises in the EU: From Myths to Reality," CESifo Working Paper Series 6386, CESifo.
    7. Javier Espinosa & William N. Evans, 2013. "Excise Taxes, Tax Incidence, and the Flight to Quality," Public Finance Review, , vol. 41(2), pages 147-176, March.
    8. Philipp J. H. Schröder & Allan Sørensen, 2021. "Specific taxation, asymmetric costs, and endogenous quality," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(5), pages 1022-1051, October.

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