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VAT versus the turnover tax with non-competitive firms

Author

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  • Das-Gupta, Arindam

    (National Institute of Public Finance and Policy)

Abstract

The VAT is compared to a turnover tax (TT) given monopoly final goods and intermediate goods firms interacting strategically. Linear demands and constant costs are assumed. Via examples it is shown that for both "Cournot" and "Stackelberg" games, a revenue neutral VAT may not exist to a given turnover tax; and the TT can dominate the VAT simultaneously in welfare, revenue and output terms. In other examples it is shown that the VAT dominating the TT by all three indicators is also possible. It is also shown that outcomes are identical to the "Cournot" game when the consumer goods firm is the strategic leader. When the intermediate goods firm is the leader, intermediate price distortion is lower and welfare higher than in the "Cournot" game under both taxes; and the output neutral VAT rate to any feasible TT rate is higher than in the "Cournot" game.

Suggested Citation

  • Das-Gupta, Arindam, 2004. "VAT versus the turnover tax with non-competitive firms," Working Papers 04/21, National Institute of Public Finance and Policy.
    • Handle: RePEc:npf:wpaper:04/21
    Note: Working Paper 21, 2004
    as

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    File URL: http://www.nipfp.org.in/working_paper/wp04_nipfp_021.pdf
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    References listed on IDEAS

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    Cited by:

    1. M. Govinda Rao & R. Kavita Rao, 2005. "Trends and Issues in Tax Policy and Reform in India," India Policy Forum, Global Economy and Development Program, The Brookings Institution, vol. 2(1), pages 55-122.

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    More about this item

    Keywords

    VAT ; Retail sales tax ; Turnover tax ; Welfare ; Tax revenue ; Cournot ; Stackelberg;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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