The Welfare Comparison of Ad-Valorem Tax and Specific Tax with Both Quality and Quantity Choice of a Consumer

Autor:	Shuichi Tsugawa, Takuya Obara
Rok vydání:	2017
Předmět:	Double taxation 05 social sciences Tax basis Microeconomics Tax revenue Value-added tax Tax credit Ad valorem tax 0502 economics and business Economics 050207 economics Distortion (economics) Indirect tax 050205 econometrics
Zdroj:	Theoretical Economics Letters. :1797-1813
ISSN:	2162-2086 2162-2078
DOI:	10.4236/tel.2017.76122
Popis:	This paper compares ad-valorem and specific taxation in models where a representative consumer with an exogenous income has both a quality and a quantity choice under perfect competition. In the setting, while ad-valorem tax causes income effect only, specific tax causes both income effect and substitution effect. Therefore, ad-valorem tax decreases consumer demand for both quality and quantity; on the other hand, specific tax decreases consumer demand for quantity. However, the sign of consumer demand for quality is ambiguous and is determined by the curvature of marginal utility on quantity. Additionally, using a constant elasticity of substitution (CES) utility function and a linear price function, we show that ad-valorem tax is superior to specific tax except for the Leontief preference under which the two forms of commodity taxes generate the same tax revenue. The substitution effect caused by specific tax disappears if the elasticity of substitution converges to zero.
Databáze:	OpenAIRE
Externí odkaz:	https://explore.openaire.eu/search/publication?articleId=doi_________::509e591bb85014e24ee9f599d4897fa6 https://doi.org/10.4236/tel.2017.76122 Zobrazit plný text záznamu