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Per Unit Versus As Valorem Taxes Under Dynamic Monopoly

Author

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  • Luca Bossi

    (Department of Economics, University of Miami)

Abstract

In the partial equilibrium framework of a static monopoly, ad valorem taxes always Pareto dominate per unit taxes. This paper shows that this result can actually be reversed in a dynamic framework where the government generates an exogenous stream of revenues through the taxation of commodities produced by a dynamic monopoly (i.e. a single producer facing dynamic demands for an inter-temporal good). We show that per unit taxes Pareto dominate ad valorem taxes provided that the per period demands are relatively elastic. We provide a taxonomy concerning the Pareto dominance of the tax systems in this context and numerical examples that support our theoretical results.

Suggested Citation

  • Luca Bossi, 2007. "Per Unit Versus As Valorem Taxes Under Dynamic Monopoly," Working Papers 0703, University of Miami, Department of Economics.
    • Handle: RePEc:mia:wpaper:0703
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    References listed on IDEAS

    as
    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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    6. Hamilton, Stephen F., 1999. "The comparative efficiency of ad valorem and specific taxes under monopoly and monopsony," Economics Letters, Elsevier, vol. 63(2), pages 235-238, May.
    7. D. B. Suits & R. A. Musgrave, 1953. "Ad Valorem and Unit Taxes Compared," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 67(4), pages 598-604.
    8. Skeath, Susan E. & Trandel, Gregory A., 1994. "A Pareto comparison of ad valorem and unit taxes in noncompetitive environments," Journal of Public Economics, Elsevier, vol. 53(1), pages 53-71, January.
    9. Robert L. Bishop, 1968. "The Effects of Specific and Ad Valorem Taxes," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 82(2), pages 198-218.
    10. Luca Bossi & Vladimir Petkov, 2007. "Habits, Market Power, and Policy Selection," Working Papers 0702, University of Miami, Department of Economics.
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    Cited by:

    1. Mackay, Daniel, 2011. "Estimating the impact of investment tax credits on aircraft demand," MPRA Paper 32767, University Library of Munich, Germany.

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    More about this item

    Keywords

    Dynamic monopoly; per unit taxes; ad valorem taxes;
    All these keywords.

    JEL classification:

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

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