Unit Versus Ad Valorem Taxes: The Private Ownership of Monopoly In General Equilibrium

Blackorby and Murty [2007] prove that, with a monopoly and under one hundred percent profit taxation and uniform lump-sum transfers, the utility possibility sets of economies with unit and ad valorem taxes are identical. This welfare-equivalence is in contrast to most previous studies. In this paper, we relax the assumption of one hundred percent profit taxation and allow the consumers to receive profit incomes from ownership of shares in the monopoly firm. We find that, for any fixed vector of profit shares, the utility possibility sets of economies with unit and ad valorem taxes are not generally identical. But it does not imply that one completely dominates the other. Rather, the two utility possibility frontiers cross each other.


Issue Date:
Oct 10 2008
Publication Type:
Working or Discussion Paper
Record Identifier:
http://ageconsearch.umn.edu/record/269755
Language:
English
Total Pages:
57




 Record created 2018-03-21, last modified 2018-03-21

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