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Failure of ad valorem and specific tax equivalence under uncertainty
Author(s) -
Goerke Laszlo,
Herzberg Frederik,
Upmann Thorsten
Publication year - 2014
Publication title -
international journal of economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 11
eISSN - 1742-7363
pISSN - 1742-7355
DOI - 10.1111/ijet.12046
Subject(s) - equivalence (formal languages) , economics , imperfect competition , ad valorem tax , mathematical economics , microeconomics , imperfect , oligopoly , econometrics , tax reform , mathematics , public economics , cournot competition , linguistics , philosophy , discrete mathematics
Applying a framework of perfect competition under uncertainty, we contribute to the discussion of whether or not ad valorem taxes and specific taxes are equivalent. While this equivalence holds without price uncertainty, we show that ad valorem taxes and specific taxes are “almost never” equivalent in the presence of uncertainty if we require equivalence to hold pathwise. Since we obtain this result under perfect competition, our analysis also provides a further rationale for why the equivalence must fail under imperfect competition.