Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/67492 
Authors: 
Year of Publication: 
2012
Series/Report no.: 
Economics Discussion Papers No. 2012-60
Publisher: 
Kiel Institute for the World Economy (IfW), Kiel
Abstract: 
A digressive tax like 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. Using a tax on price in combination with ad valorem taxation it is possible to achieve the Ramsey solution. That is, the combination of the two taxes secures tax revenue in the least distortive way. We also 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.
Subjects: 
tax on price
ad valorem tax
tax incidence
JEL: 
H21
L31
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Working Paper

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