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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.
    2. Schmalensee, Richard, 1981. "Output and Welfare Implications of Monopolistic Third-Degree Price Discrimination," American Economic Review, American Economic Association, vol. 71(1), pages 242-247, March.
    3. E. Glen Weyl & Michal Fabinger, 2013. "Pass-Through as an Economic Tool: Principles of Incidence under Imperfect Competition," Journal of Political Economy, University of Chicago Press, vol. 121(3), pages 528-583.
    4. Jeffrey Grogger, 2017. "Soda Taxes And The Prices of Sodas And Other Drinks: Evidence From Mexico," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 99(2), pages 481-498.
    5. Donald S. Kenkel, 2005. "Are Alcohol Tax Hikes Fully Passed Through to Prices? Evidence from Alaska," American Economic Review, American Economic Association, vol. 95(2), pages 273-277, May.
    6. Iñaki Aguirre & Simon Cowan & John Vickers, 2010. "Monopoly Price Discrimination and Demand Curvature," American Economic Review, American Economic Association, vol. 100(4), pages 1601-1615, September.
    7. Daniel Flores & Vitaliy Kalashnikov, 2017. "Parking Discounts: Price Discrimination with Different Marginal Costs," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 50(1), pages 91-103, February.
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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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