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Multi‐part tariffs and differentiated commodity taxation
Author(s) -
D'Annunzio Anna,
Mardan Mohammed,
Russo Antonio
Publication year - 2020
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12340
Subject(s) - commodity , tariff , ad valorem tax , welfare , business , payment , commerce , government (linguistics) , economics , microeconomics , monetary economics , industrial organization , international economics , double taxation , public economics , market economy , finance , linguistics , philosophy
We study commodity taxation in markets where firms, such as Internet Service Providers, energy suppliers, and payment card platforms, adopt multi‐part tariffs. We show that ad valorem taxes can correct underprovision and hence increase welfare, provided the government applies differentiated tax rates to the usage and access parts of the tariff. We obtain this result in different settings, including vertically interlinked markets, markets where firms adopt menus of tariffs to screen consumers, and where they compete with multi‐part tariffs. Our results suggest that exempting these markets from taxation may be inefficient.