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Revenue‐Neutral Tax Policies under Price Uncertainty
Author(s) -
Holloway Garth J.
Publication year - 1990
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1243155
Subject(s) - treasury , economics , marginal revenue , microeconomics , revenue , marginal cost , tax rate , risk neutral , tax revenue , monetary economics , tax credit , public economics , finance , archaeology , history
The firm's response to revenue‐neutral taxation is investigated under price uncertainty. Revenue‐neutral policies adjust simultaneously the marginal tax rate and the level of exemptions while keeping expected tax receipts constant. Nonincreasing absolute risk aversion is sufficient to sign the firm's response: a reduction in the marginal rate causes the firm to contract output. Implications are established for the equilibrium level of treasury receipts.