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The Comparison of ad Valorem and Specific Taxation under Uncertainty
Author(s) -
KOTSOGIANNIS CHRISTOS,
SERFES KONSTANTINOS
Publication year - 2014
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/jpet.12059
Subject(s) - economics , cournot competition , microeconomics , ad valorem tax , public finance , revenue , tax revenue , public economics , double taxation , macroeconomics , finance
The comparison between specific (per unit) and ad valorem (percentage) taxation has been one of the oldest issues in public finance. In Cournot markets, with deterministic costs structures, conventional wisdom has it that ad valorem taxation tax‐revenue dominates specific. It is shown that in the presence of uncertainty, regarding firms’ cost structures, and under reasonable conditions, the conventional wisdom might not hold. The implication of this, from a policy perspective, is that the precise evaluation of the two types of taxation requires an explicit consideration of cost uncertainty.