Commodity Tax Structure Under Uncertainty in a Perfectly Competitive Market
23 Pages Posted: 14 Feb 2011
Date Written: February 14, 2011
In a partial equilibrium setting without price uncertainty, the balanced-budget substitution of an ad valorem tax on output for a specific (unit) tax can enhance welfare in imperfectly competitive markets and is without impact in a competitive world. This paper demonstrates that a substitution of this kind can also increase expected output and welfare in a competitive market characterised by uncertainty about the commodity price, if firms can respond to the revelation of demand conditions by altering output.
Keywords: ad valorem tax, commodity taxation, perfect competition, uncertainty, unit tax
JEL Classification: H210, H250
Suggested Citation: Suggested Citation