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Ad Valorem Taxation in a Multiproduct Monopoly

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  • Anna D'Annunzio
  • Antonio Russo

Abstract

We study the pass-through of ad valorem taxes with a multiproduct monopolist. We characterize two mechanisms whereby an ad valorem tax on one good reduces all prices (Edgeworth’s paradox), depending on the goods being substitutes or complements. We also find that the tax can increase the supply of all goods. Hence, consumer surplus and welfare can increase even when the goods are underprovided compared to the social optimum. We provide several applications where these results hold. Our findings indicate that in a multiproduct setting the effects of unit and ad valorem taxes on market outcomes and welfare are fundamentally different.

Suggested Citation

  • Anna D'Annunzio & Antonio Russo, 2022. "Ad Valorem Taxation in a Multiproduct Monopoly," CESifo Working Paper Series 9881, CESifo.
    • Handle: RePEc:ces:ceswps:_9881
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    References listed on IDEAS

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    Cited by:

    1. Antoniades, Alexis & Clerides, Sofronis & Xu, Mingzhi, 2023. "Multi-product firm price and variety response to firm-specific cost shocks," International Journal of Industrial Organization, Elsevier, vol. 90(C).
    2. Anna D'Annunzio & Antonio Russo, 2022. "Welfare-Enhancing Taxation and Price Discrimination," CESifo Working Paper Series 10007, CESifo.

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    More about this item

    Keywords

    commodity taxation; tax incidence; multi-product firms; monopoly;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence

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