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Indirect taxation, quality choice, and social welfare

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  • Xingtang Wang
  • Leonard F. S. Wang

Abstract

This paper takes into account the quality of the products in an oligopolistic framework to examine the superiority of a specific tax versus an ad valorem tax. We find that the government can get more tax revenues by adopting ad valorem tax compared with specific tax. In the case of fixed marginal cost, the consumer surplus and social welfare is higher (lower) under specific tax than ad valorem tax if the marginal cost gap is small (large). When the marginal cost is related to product quality, we find that the consumer surplus and social welfare is higher under specific tax.

Suggested Citation

  • Xingtang Wang & Leonard F. S. Wang, 2022. "Indirect taxation, quality choice, and social welfare," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 1764-1772, September.
    • Handle: RePEc:wly:mgtdec:v:43:y:2022:i:6:p:1764-1772
    DOI: 10.1002/mde.3485
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    References listed on IDEAS

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    1. Delipalla, Sofia & Keen, Michael, 1992. "The comparison between ad valorem and specific taxation under imperfect competition," Journal of Public Economics, Elsevier, vol. 49(3), pages 351-367, December.
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    9. X. Wang & Jingang Zhao, 2009. "On the efficiency of indirect taxes in differentiated oligopolies with asymmetric costs," Journal of Economics, Springer, vol. 96(3), pages 223-239, April.
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    1. Potluka, Oto, 2023. "Why and how to use the quality of life as an evaluation criterion?," Evaluation and Program Planning, Elsevier, vol. 100(C).

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