The welfare comparison of corrective ad valorem and unit taxes under monopolistic competition

Susanne Dröge; Philipp J.H. Schröder

doi:10.1007/s10797-007-9061-9

The welfare comparison of corrective ad valorem and unit taxes under monopolistic competition

GlobID -Globalization and Industry Dynamics

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaper › Journal article › Research › peer-review

23 Citations (Scopus)

Abstract

The ad valorem versus unit tax debate has traditionally emphasized tax yield. On this criterion, ad valorem taxes outperform unit taxes in terms of welfare for a wide range of imperfect competition settings including Dixit--Stiglitz monopolistic competition. However, in a number of policy fields such as environmental, health, and trade economics, policy makers use taxes to reduce the production/consumption volume in an industry, i.e., to correct an externality rather than to improve tax yield. This paper compares the two tax instruments with respect to equal corrective effect in a Dixit--Stiglitz setting with love of variety, entry, exit, and redistribution of tax revenues. We find that unit taxes lead to more firms in the industry, less output per firm, less tax revenue, but higher welfare compared to ad valorem taxes.

Original language	English
Journal	International Tax and Public Finance
Volume	16
Issue	2
Pages (from-to)	164-175
Number of pages	12
ISSN	0927-5940
DOIs	https://doi.org/10.1007/s10797-007-9061-9
Publication status	Published - 2009

Keywords

Environment
Regulation

Access to Document

10.1007/s10797-007-9061-9

http://www.baser.dk/login?url=http://springerlink.metapress.com/content/5p737755w41033x3/fulltext.pdf

Cite this

@article{5dd021a0b61211dc9d95000ea68e967b,

title = "The welfare comparison of corrective ad valorem and unit taxes under monopolistic competition",

abstract = "The ad valorem versus unit tax debate has traditionally emphasized tax yield. On this criterion, ad valorem taxes outperform unit taxes in terms of welfare for a wide range of imperfect competition settings including Dixit--Stiglitz monopolistic competition. However, in a number of policy fields such as environmental, health, and trade economics, policy makers use taxes to reduce the production/consumption volume in an industry, i.e., to correct an externality rather than to improve tax yield. This paper compares the two tax instruments with respect to equal corrective effect in a Dixit--Stiglitz setting with love of variety, entry, exit, and redistribution of tax revenues. We find that unit taxes lead to more firms in the industry, less output per firm, less tax revenue, but higher welfare compared to ad valorem taxes.",

keywords = "Regulation, Environment, Regulation",

author = "Susanne Dr{\"o}ge and Schr{\"o}der, {Philipp J.H.}",

year = "2009",

doi = "10.1007/s10797-007-9061-9",

language = "English",

volume = "16",

pages = "164--175",

journal = "International Tax and Public Finance",

issn = "0927-5940",

publisher = "Springer",

number = "2",

}

TY - JOUR

T1 - The welfare comparison of corrective ad valorem and unit taxes under monopolistic competition

AU - Dröge, Susanne

AU - Schröder, Philipp J.H.

PY - 2009

Y1 - 2009

N2 - The ad valorem versus unit tax debate has traditionally emphasized tax yield. On this criterion, ad valorem taxes outperform unit taxes in terms of welfare for a wide range of imperfect competition settings including Dixit--Stiglitz monopolistic competition. However, in a number of policy fields such as environmental, health, and trade economics, policy makers use taxes to reduce the production/consumption volume in an industry, i.e., to correct an externality rather than to improve tax yield. This paper compares the two tax instruments with respect to equal corrective effect in a Dixit--Stiglitz setting with love of variety, entry, exit, and redistribution of tax revenues. We find that unit taxes lead to more firms in the industry, less output per firm, less tax revenue, but higher welfare compared to ad valorem taxes.

AB - The ad valorem versus unit tax debate has traditionally emphasized tax yield. On this criterion, ad valorem taxes outperform unit taxes in terms of welfare for a wide range of imperfect competition settings including Dixit--Stiglitz monopolistic competition. However, in a number of policy fields such as environmental, health, and trade economics, policy makers use taxes to reduce the production/consumption volume in an industry, i.e., to correct an externality rather than to improve tax yield. This paper compares the two tax instruments with respect to equal corrective effect in a Dixit--Stiglitz setting with love of variety, entry, exit, and redistribution of tax revenues. We find that unit taxes lead to more firms in the industry, less output per firm, less tax revenue, but higher welfare compared to ad valorem taxes.

KW - Regulation

KW - Environment

KW - Regulation

U2 - 10.1007/s10797-007-9061-9

DO - 10.1007/s10797-007-9061-9

M3 - Journal article

SN - 0927-5940

VL - 16

SP - 164

EP - 175

JO - International Tax and Public Finance

JF - International Tax and Public Finance

IS - 2

ER -

The welfare comparison of corrective ad valorem and unit taxes under monopolistic competition

Abstract

Keywords

Access to Document

Fingerprint

Cite this