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The comparison between ad valorem and unit taxes under monopolistic competition

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This paper shows that the welfare dominance of ad valorem over unit taxes under imperfect competition, extends to a Dixit-Stiglitz-type monopolistic competition framework with differentiated products, increasing returns to scale, entry/exit and love of variety. This result is obtained, even though ad valorem taxation leads to increased firm exit compared to the equal-yield unit tax. Yet the smaller tax over-shift, occurring under ad valorem taxation, more than compensates this disadvantage.
Udgivelsesdato: DEC
Original languageEnglish
JournalJournal of Economics
Pages (from-to)281-292
Number of pages12
Publication statusPublished - 2004

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