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

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The welfare comparison of corrective ad valorem and unit taxes under monopolistic competition. / Dröge, Susanne; Schröder, Philipp J.H.

In: International Tax and Public Finance, Vol. 16, No. 2, 2009, p. 164-175.

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaperJournal articleResearchpeer-review

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Dröge, Susanne ; Schröder, Philipp J.H. / The welfare comparison of corrective ad valorem and unit taxes under monopolistic competition. In: International Tax and Public Finance. 2009 ; Vol. 16, No. 2. pp. 164-175.

Bibtex

@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 New York LLC",
number = "2",

}

RIS

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

VL - 16

SP - 164

EP - 175

JO - International Tax and Public Finance

JF - International Tax and Public Finance

SN - 0927-5940

IS - 2

ER -