Ad Valorem versus Unit Taxes in Oligopoly and Endogenous Market Conduct

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Abstract

In oligopoly, comparison of the tax pass-through favors the use of ad valorem taxes compared to unit taxes. We argue that, in addition to differences in tax pass-through, the two taxes have a dissimilar effect on firms' strategic interaction. The anticompetitive effects of the two taxes favor unit taxes over ad valorem taxes. We show both when there is a preference for unit taxation and when it is likely that the conventional preference for ad valorem taxation is upheld.
Original languageEnglish
JournalPublic Finance Review
Volume42
Issue number4
Pages (from-to)532-551
Number of pages19
ISSN1091-1421
Publication statusPublished - 2014
Externally publishedYes

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