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Product Quality and the Optimal Structure of Commodity Taxes
Author(s) -
DELIPALLA SOFIA,
KEEN MICHAEL
Publication year - 2006
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/j.1467-9779.2006.00277.x
Subject(s) - economics , commodity , homogeneous , microeconomics , product (mathematics) , quality (philosophy) , ad valorem tax , balance (ability) , public finance , price elasticity of demand , public economics , macroeconomics , double taxation , finance , physics , geometry , mathematics , epistemology , medicine , philosophy , physical medicine and rehabilitation , thermodynamics
The comparison between ad valorem and specific taxation is among the oldest issues in formal public finance and is important for policy in the European Union (EU) and elsewhere. This paper develops and articulates simple but very general elasticity rules that characterize the optimal balance between the two in a model of endogenous product quality. These rules temper the preference for ad valorem taxation that emerges from homogeneous product models, pointing to relatively heavy reliance on whichever form of taxation has the least effect on product quality.