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Sales Tax: Specific or Ad Valorem Tax for a Non-renewable Resource?

Author

Listed:
  • Nguyen Manh Hung

    () (Département économique, Université Laval, Quebec, Canada G1W 4R9)

  • Nguyen Van Quyen

    () (Département de science économique, Université d'Ottawa, 55 Laurier E, Ottawa, Ontario, Canada K1N 6N5)

Abstract

This paper shows that for a time-independent specific tax and a time-independent ad valorem tax that induce the same competitive equilibrium in the Hotelling model of resource extraction, the ad valorem tax yields a higher level of discounted tax revenues than the specific tax. Moreover, given the same level of discounted tax revenues, the ad valorem tax also yields a higher level of social welfare. Finally, for the time-dependent schedules of optimal ad valorem tax and optimal specific tax, we show that when appropriately set, they are equivalent in implementing the dynamic social optimum and providing the same discounted tax revenues.

Suggested Citation

  • Nguyen Manh Hung & Nguyen Van Quyen, 2009. "Sales Tax: Specific or Ad Valorem Tax for a Non-renewable Resource?," Working Papers 03, Development and Policies Research Center (DEPOCEN), Vietnam.
  • Handle: RePEc:dpc:wpaper:0309
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    More about this item

    Keywords

    Non-renewable Resources; Ad Valorem Tax; Specific Tax; Welfare;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General

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