Christos Kotsogiannis, Department of Economics, University of Exeter Business School, Streatham Court, Rennes Drive, Exeter EX4 4PU, England, UK, and CESIfo, Munich, Germany (firstname.lastname@example.org). Konstantinos Serfes, Department of Economics, LeBow College of Business, Drexel University, Philadelphia, PA 19104, USA (email@example.com).
The Comparison of ad Valorem and Specific Taxation under Uncertainty
Version of Record online: 15 AUG 2013
© 2013 Wiley Periodicals, Inc.
Journal of Public Economic Theory
Volume 16, Issue 1, pages 48–68, February 2014
How to Cite
KOTSOGIANNIS, C. and SERFES, K. (2014), The Comparison of ad Valorem and Specific Taxation under Uncertainty. Journal of Public Economic Theory, 16: 48–68. doi: 10.1111/jpet.12059
We thank a coeditor and two anonymous referees for many insightful comments. We also thank Michael Keen and Markus Reisinger and seminar participants at Athens University of Economics and Business and conference participants at the 2011 American Economic Association meeting in Denver for comments and advice. Any remaining errors are, of course, ours. This research was initiated while Serfes was visiting the University of Exeter Business School and completed while Kotsogiannis was visiting LeBow College of Business, Drexel University. The hospitality of both institutions is gratefully acknowledged. Financial support from the Catalan Government Science Network (SGR2005-177 and XREPP) and the Spanish Ministry of Education and Science Research Project (SEJ2006-4444) is gratefully acknowledged (Kotsogiannis).
- Issue online: 7 JAN 2014
- Version of Record online: 15 AUG 2013
- Accepted manuscript online: 17 JUN 2013 02:57AM EST
- Manuscript Accepted: 14 APR 2012
- Manuscript Received: 25 JAN 2011
- Catalan Government Science Network. Grant Number: SGR2005-177 and XREPP
- Spanish Ministry of Education and Science Research Project. Grant Number: SEJ2006-4444
The comparison between specific (per unit) and ad valorem (percentage) taxation has been one of the oldest issues in public finance. In Cournot markets, with deterministic costs structures, conventional wisdom has it that ad valorem taxation tax-revenue dominates specific. It is shown that in the presence of uncertainty, regarding firms’ cost structures, and under reasonable conditions, the conventional wisdom might not hold. The implication of this, from a policy perspective, is that the precise evaluation of the two types of taxation requires an explicit consideration of cost uncertainty.