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The legal incidence of ad valorem taxes matters

Author

Listed:
  • Wilfried Pauwels

    (University of Antwerp)

  • Fred Schroyen

    (NHH Norwegian School of Economics)

Abstract

It is well known that, for a specific tax, its economic incidence does not depend on which side of the market has the legal obligation to pay the tax. In this paper, we show that, for an ad valorem tax, this legal incidence does matter for the economic incidence. In particular, when a government imposes an ad valorem tax rate on the sale of a commodity, the resulting reduction in the market equilibrium level of sales will be larger when sellers are obliged to pay the tax than when buyers are obliged to pay the tax.

Suggested Citation

  • Wilfried Pauwels & Fred Schroyen, 2024. "The legal incidence of ad valorem taxes matters," Journal of Economics, Springer, vol. 142(2), pages 199-211, July.
    • Handle: RePEc:kap:jeczfn:v:142:y:2024:i:2:d:10.1007_s00712-024-00863-0
    DOI: 10.1007/s00712-024-00863-0
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    References listed on IDEAS

    as
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    2. Christiansen,Vidar & Smith,Stephen, 2021. "Economic Principles of Commodity Taxation," Cambridge Books, Cambridge University Press, number 9781009002028, November.
    3. Pierre Picard & Eric Toulemonde, 2001. "On the Equivalence of Taxes Paid by Employers and Employees," Scottish Journal of Political Economy, Scottish Economic Society, vol. 48(4), pages 461-470, September.
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    More about this item

    Keywords

    Economic incidence; Legal incidence; Statutory incidence; Ad valorem taxes; Invariance theorem;
    All these keywords.

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence

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