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The (Non‐)Equivalence of Input and Output Taxes Under Monopoly
Author(s) -
BayındırUpmann Thorsten
Publication year - 2001
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/1467-8586.00130
Subject(s) - economics , monopoly , equivalence (formal languages) , microeconomics , tax revenue , revenue , production (economics) , returns to scale , ricardian equivalence , indirect tax , tax rate , income tax , optimal tax , ad valorem tax , monetary economics , public economics , tax reform , fiscal policy , finance , linguistics , philosophy
The author argues that a government taxing a polluting monopoly by means of levies on output and inputs can implement the first‐best allocation through a continuum of tax profiles. Using this degree of freedom in the tax system, the government is, in general, able to transfer income from the firm to the public sector, so that the additional tax rate acts as a non‐distorting tax on profits. This transfer – and therefore public revenue – is the higher, the lower (higher) the input taxes are, and correspondingly the higher (lower) the output tax is, provided that the production function exhibits decreasing (increasing) returns to scale.