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The ambiguous effects of taxing foreign buyers

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  • Flores, Daniel

Abstract

I model the effects of a discriminatory tax in the context of monopoly. The monopolist serves two types of customers: locals and foreigners. While the firm may or may not price discriminate, the government taxes foreign customers only. I show that this tax has ambiguous effects on price, output and welfare under uniform pricing. Moreover, it may reduce local welfare even if the price falls. I also show that the tax reduces output and local welfare under third-degree price discrimination.

Suggested Citation

  • Flores, Daniel, 2018. "The ambiguous effects of taxing foreign buyers," Economics Letters, Elsevier, vol. 163(C), pages 179-181.
    • Handle: RePEc:eee:ecolet:v:163:y:2018:i:c:p:179-181
    DOI: 10.1016/j.econlet.2017.12.033
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    References listed on IDEAS

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    1. Yongmin Chen & Marius Schwartz, 2015. "Differential pricing when costs differ: a welfare analysis," RAND Journal of Economics, RAND Corporation, vol. 46(2), pages 442-460, June.
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    More about this item

    Keywords

    Taxation; Foreign buyers; Discrimination;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly

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