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Indirect taxation of monopolists: A tax on price


  • Vetter, Henrik


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.

Suggested Citation

  • Vetter, Henrik, 2013. "Indirect taxation of monopolists: A tax on price," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 7, pages 1-13.
  • Handle: RePEc:zbw:ifweej:20136

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    References listed on IDEAS

    1. Seade, Jesus K, 1980. "On the Effects of Entry," Econometrica, Econometric Society, vol. 48(2), pages 479-489, March.
    2. Sumner, Michael, 1993. "Tax on Price: A Comment," Public Finance = Finances publiques, , vol. 48(2), pages 297-302.
    3. D. B. Suits & R. A. Musgrave, 1953. "Ad Valorem and Unit Taxes Compared," The Quarterly Journal of Economics, Oxford University Press, vol. 67(4), pages 598-604.
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    Cited by:

    1. Carbonnier, Clément, 2014. "The incidence of non-linear price-dependent consumption taxes," Journal of Public Economics, Elsevier, vol. 118(C), pages 111-119.

    More about this item


    tax on price; ad valorem tax; tax incidence;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets


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