Journal Article

No. 2013-6 | February 20, 2013
Indirect Taxation of Monopolists: A Tax on Price PDF Icon

Abstract

A digressive tax such as a variable rate sales tax or a tax on price gives firms an incentive for expanding output. Thus, unlike unit and ad valorem taxes which amplify the harm from monopoly, a digressive tax lessens the harm. We analyse a tax on price with respect to efficiency and practical policy appeal. In particular, we show how tax reforms based only on observation of price and quantity can make use of a tax on price in order to improve welfare. That is, it is practical to use a tax on price. The argument extends to fixed-number homogenous oligopoly.

JEL Classification

H21 L13

Citation

Henrik Vetter (2013). Indirect Taxation of Monopolists: A Tax on Price. Economics: The Open-Access, Open-Assessment E-Journal, 7 (2013-6): 1—13. http://dx.doi.org/10.5018/economics-ejournal.ja.2013-6

Assessment

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