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Welfare-enhancing taxation and price discrimination

Author

Listed:
  • Anna D’Annunzio

    (TBS Business School)

  • Antonio Russo

    (Department of Economics, University of Sheffield and CESifo)

Abstract

We study commodity taxation in markets where suppliers implement second-degree price discrimination, by offering different package sizes or quality-differentiated versions of a product. In these markets, suppliers distort the quantity (or quality) intended for all types of consumers, except for those with the highest marginal willingness to pay. We show that differentiated ad valorem taxes can alleviate this distortion, and thus increase government revenue as well as welfare, provided the tax rate increases with the size of the package (or quality of the version) of the good supplied.

Suggested Citation

  • Anna D’Annunzio & Antonio Russo, 2023. "Welfare-enhancing taxation and price discrimination," Working Papers 2023001, The University of Sheffield, Department of Economics.
    • Handle: RePEc:shf:wpaper:2023001
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    File URL: https://www.sheffield.ac.uk/economics/research/serps
    File Function: First version, January 2023
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    More about this item

    Keywords

    Commodity taxation; tax incidence; price discrimination;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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