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Indirect taxation of monopolists: A tax on price

  • Vetter, Henrik
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    A digressive tax such as a variable rate sales tax or a tax on price gives firms an incentive for expanding output. Thus, unlike unit and ad valorem taxes which amplify the harm from monopoly, a digressive tax lessens the harm. We analyse a tax on price with respect to efficiency and practical policy appeal. In particular, we show how tax reforms based only on observation of price and quantity can make use of a tax on price in order to improve welfare. That is, it is practical to use a tax on price. The argument extends to fixed-number homogenous oligopoly.

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    File URL: http://dx.doi.org/10.5018/economics-ejournal.ja.2013-6
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    File URL: http://econstor.eu/bitstream/10419/70098/1/737084855.pdf
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    Article provided by Kiel Institute for the World Economy in its journal Economics: The Open-Access, Open-Assessment E-Journal.

    Volume (Year): 7 (2013)
    Issue (Month): ()
    Pages: 1-13

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    Handle: RePEc:zbw:ifweej:20136
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    1. Sumner, Michael, 1993. "Tax on Price: A Comment," Public Finance = Finances publiques, , vol. 48(2), pages 297-302.
    2. Seade, Jesus K, 1980. "On the Effects of Entry," Econometrica, Econometric Society, vol. 48(2), pages 479-89, March.
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