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COMMODITY TAX STRUCTURE AND INFORMAL ACTIVITY
Author(s) -
Delipalla Sophia
Publication year - 2009
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/j.1467-8586.2009.00306.x
Subject(s) - economics , formality , ad valorem tax , commodity , microeconomics , constraint (computer aided design) , maximization , tax revenue , welfare , tax rate , revenue , tax reform , monetary economics , public economics , market economy , finance , mathematics , philosophy , linguistics , geometry
Commodity tax structure affects the firm's choice between formality and informality. An increase in the specific tax rate, relative to an equivalent increase in ad valorem taxation, makes informality attractive to more firms. Formality becomes attractive at lower levels of profits under ad valorem taxation. For both the maximization of welfare subject to a revenue constraint and the unconstrained maximization of revenue, the optimal rate of specific taxation is zero.