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Indirect Taxation in Vertical Oligopoly

Indirect Taxation in Vertical Oligopoly This paper analyzes the effects of specific and ad valorem taxation in an industry with downstream and upstream oligopoly and endogenous entry in both layers. We find that it is typically more efficient to levy an ad valorem tax downstream than upstream, while it is immaterial on which layer a specific tax is levied. We also show that tax revenues should be raised only through ad valorem taxes. Furthermore, we provide conditions under which the introduction of an indirect tax improves welfare. From a total surplus perspective, excise taxes tend to appear in a less favorable light when the full vertical supply chain is considered compared to a partial analysis which only takes into account market power at one layer. Finally, we demonstrate that a tax tends to be shifted to a larger extent into the final consumer price in vertical oligopoly than in standard oligopoly. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Industrial Economics Wiley

Indirect Taxation in Vertical Oligopoly

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References (59)

Publisher
Wiley
Copyright
Copyright © 2014 The Editorial Board of The Journal of Industrial Economics and John Wiley & Sons Ltd
ISSN
0022-1821
eISSN
1467-6451
DOI
10.1111/joie.12059
Publisher site
See Article on Publisher Site

Abstract

This paper analyzes the effects of specific and ad valorem taxation in an industry with downstream and upstream oligopoly and endogenous entry in both layers. We find that it is typically more efficient to levy an ad valorem tax downstream than upstream, while it is immaterial on which layer a specific tax is levied. We also show that tax revenues should be raised only through ad valorem taxes. Furthermore, we provide conditions under which the introduction of an indirect tax improves welfare. From a total surplus perspective, excise taxes tend to appear in a less favorable light when the full vertical supply chain is considered compared to a partial analysis which only takes into account market power at one layer. Finally, we demonstrate that a tax tends to be shifted to a larger extent into the final consumer price in vertical oligopoly than in standard oligopoly.

Journal

The Journal of Industrial EconomicsWiley

Published: Jan 1, 2014

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