On Taxation Pass-Through for a Monopoly Firm

CORE Discussion Paper No. 2004/39

22 Pages Posted: 3 Mar 2007

See all articles by Rabah Amir

Rabah Amir

University of Arizona - Department of Economics; University of Arizona

Isabella Maret

BETA, Pole European Faculte de Sciences Economique

Michael Troege

ESCP-Europe

Date Written: June 2004

Abstract

This paper investigates the pass-through of an excise tax imposed on a monopoly firm with constant marginal cost. The optimal price increases as tax increases for any demand function. Tax pass-through is globally under or in excess of 100% according as the direct demand function is log-concave or log-convex. The analysis relies on supermodular optimization and delivers conclusions based on minimal sufficient assumptions in a simple, broadly accessible and self-contained framework. Further results allow for mixed conditions that provide precise and local determination of pass-through. Several illustrative examples are given. Policy conclusions relating to the relative wisdom of taxing high versus low cost monopoly firms are drawn from the results.

Suggested Citation

Amir, Rabah and Maret, Isabella and Troege, Michael, On Taxation Pass-Through for a Monopoly Firm (June 2004). CORE Discussion Paper No. 2004/39. Available at SSRN: https://ssrn.com/abstract=967611 or http://dx.doi.org/10.2139/ssrn.967611

Rabah Amir (Contact Author)

University of Arizona - Department of Economics ( email )

Tucson, AZ 85721
United States

University of Arizona ( email )

Department of History
Tucson, AZ 85721
United States

Isabella Maret

BETA, Pole European Faculte de Sciences Economique ( email )

61 avenue de la Foret-Noire
F-67 085 Strasbourg Cedex
France

Michael Troege

ESCP-Europe ( email )

79, Avenue de Republique
75543 Paris, Cedex 11, 75011
France
33/149232601 (Phone)

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