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The Comparison of ad Valorem and Specific Taxation under Uncertainty

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  • CHRISTOS KOTSOGIANNIS
  • KONSTANTINOS SERFES

Abstract

The comparison between specific (per unit) and ad valorem (percentage) taxation has been one of the oldest issues in public finance. In Cournot markets, with deterministic costs structures, conventional wisdom has it that ad valorem taxation tax-revenue dominates specific. It is shown that in the presence of uncertainty, regarding firms’ cost structures, and under reasonable conditions, the conventional wisdom might not hold. The implication of this, from a policy perspective, is that the precise evaluation of the two types of taxation requires an explicit consideration of cost uncertainty.

Suggested Citation

  • Christos Kotsogiannis & Konstantinos Serfes, 2014. "The Comparison of ad Valorem and Specific Taxation under Uncertainty," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 16(1), pages 48-68, February.
    • Handle: RePEc:bla:jpbect:v:16:y:2014:i:1:p:48-68
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