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On the Role of Sales Taxes for Efficient Compensation of Property Loss Under Strict Liability

Author

Listed:
  • Baumann Florian

    (CASTLE, University of Bonn, Adenauerallee 24–42, 53113 Bonn, Germany)

  • Friehe Tim

    (University of Marburg, Public Economics Group, Am Plan 2, 35037 Marburg, Germany)

Abstract

When a victim loses property due to an injurer’s wrongful act, it must be decided whether the damages award should include the sales taxes associated with the lost property’s replacement. This is especially acute when the victim can make other use of the damages award than replacement. This paper compares regimes that differ in how they treat sales taxes, focusing on possible distortions of consumption and care choices. We find that regimes that include sales taxes in damages awards only when incurred to replace the lost property (as, for instance, the German Civil Code does) induce suboptimal consumption and care incentives. Distortions of care incentives also depend on the nature of care expenditures (monetary or non-monetary).

Suggested Citation

  • Baumann Florian & Friehe Tim, 2024. "On the Role of Sales Taxes for Efficient Compensation of Property Loss Under Strict Liability," Review of Law & Economics, De Gruyter, vol. 20(1), pages 21-34.
    • Handle: RePEc:bpj:rlecon:v:20:y:2024:i:1:p:21-34:n:1004
    DOI: 10.1515/rle-2023-0060
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    References listed on IDEAS

    as
    1. Florian Baumann & Tim Friehe, 2015. "Optimal Damages Multipliers in Oligopolistic Markets," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 171(4), pages 622-640, December.
    2. Kaplow, Louis & Shavell, Steven, 1996. "Accuracy in the Assessment of Damages," Journal of Law and Economics, University of Chicago Press, vol. 39(1), pages 191-210, April.
    3. Robert D. Cooter, 1991. "Economic Theories of Legal Liability," Journal of Economic Perspectives, American Economic Association, vol. 5(3), pages 11-30, Summer.
    4. Hans-Bernd Schäfer & Claus Ott, 2022. "The Economic Analysis of Civil Law," Books, Edward Elgar Publishing, number 14501.
    5. Polinsky, A Mitchell & Rubinfeld, Daniel L, 1988. "The Welfare Implications of Costly Litigation for the Level of Liability," The Journal of Legal Studies, University of Chicago Press, vol. 17(1), pages 151-164, January.
    6. Tim Friehe & Avraham Tabbach, 2014. "Judgment Proofness and the Choice between Monetary and Nonmonetary Care," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 170(2), pages 249-274, June.
    7. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, Decembrie.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    care; damages; efficiency; liability; sales tax;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics

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