Specific versus Ad valorem taxation with tax evasion in imperfectly competitive markets

K. L. Glen Ueng, Che Chiang Huang, Jin-Li Hu*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

This paper calls into question the equivalence between specific and ad valorem taxation in the presence of tax evasion under imperfect competition. Once there is evasion, evading specific taxes has to take place via concealing quantities sold, whereas evading ad valorem taxes can take place via concealing selling prices as well as quantities sold. With this difference, we show that in imperfectly competitive markets (i) if per-unit taxes are the same, output will be larger under ad valorem taxation, and (ii) specific taxation may be superior to ad valorem taxation if it causes firms to channel fewer resources into tax evasion.

Original languageEnglish
Pages (from-to)107-119
JournalHitotsubashi Journal of Economics
Volume58
Issue number2
DOIs
StatePublished - 1 Dec 2017

Keywords

  • Ad valorem taxation
  • Specific taxation
  • Tax evasion

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