The Efficiency of Indirect Taxes Under Imperfect Competition

23 Pages Posted: 3 Apr 2000

See all articles by Simon P. Anderson

Simon P. Anderson

University of Virginia - Department of Economics

Andre de Palma

University of Cergy-Pontoise - Department of Economics

Brent Kreider

Iowa State University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: February 2000

Abstract

The relative efficiency of ad valorem and unit taxes is analyzed for oligopolistic markets. We provide a simple proof that ad valorem taxes welfare-dominate unit taxes in the short run if production costs are identical across firms. The proof covers a wide range of market conduct and differentiated products. Cost asymmetries strengthen the case for ad valorem taxation under Cournot competition, but unit taxation may be preferred under Bertrand competition with product differentiation. Ad valorem taxation is welfare-superior with free entry under Cournot competition, but unit taxation may be more efficient under price competition if consumers value variety.

JEL Classification: D43, H21, H22, L13

Suggested Citation

Anderson, Simon P. and De Palma, Andre and Kreider, Brent, The Efficiency of Indirect Taxes Under Imperfect Competition (February 2000). Available at SSRN: https://ssrn.com/abstract=218273 or http://dx.doi.org/10.2139/ssrn.218273

Simon P. Anderson

University of Virginia - Department of Economics ( email )

P.O. Box 400182
Charlottesville, VA 22904-4182
United States
804-924-3861 (Phone)
804-982-2904 (Fax)

Andre De Palma

University of Cergy-Pontoise - Department of Economics ( email )

Site des Chênes 1
33 boulevard du Port
Cergy-Pontoise, Cédex F-95011
France
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33 1 34 25 62 33 (Fax)

Brent Kreider (Contact Author)

Iowa State University - Department of Economics ( email )

260 Heady Hall
Ames, IA 50011
United States
515-294-6237 (Phone)
515-294-1700 (Fax)

HOME PAGE: http://www.econ.iastate.edu/faculty/kreider

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