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Abstract
This dissertation consists of three independent articles in studying the superiority of an ad valorem tax over a specific tax.
First of all, we discuss the superiority between these two tax regimes in the presence of demand and cost uncertainties in chapter 2. We obtain the following main results. First, when cost uncertainty is involved, a specific tax can be superior to an ad valorem tax regardless of whether the market is monopolistic or oligopolistic. When the market is close to perfect competition, a specific tax is welfare superior to an ad valorem tax. Second, when demand uncertainty is considered, an ad valorem tax is welfare superior to a specific tax in monopoly and oligopoly markets. However, both tax regimes become equivalent when the market is approaching perfectly competitive.
Next, by taking into account product differentiation and cost difference, we examine the superiority between these two tax regimes in chapter 3 of the dissertation. The main results are derived as follows. First, given a fixed total output, a specific tax can be superior to an ad valorem tax if the quality difference is larger than the marginal-cost difference. Second, provided that products are differentiated in quality levels, in horizontal levels, and in marginal costs, a rise in the difference in horizontal levels will enhance the superiority of a specific tax over an ad valorem tax. Third, the above two results remain valid, regardless of whether the mode of competition is Cournot or Bertrand. Finally, when the difference in quality levels is larger than the difference in marginal costs, not only is a specific tax welfare superior to an ad valorem tax, but the former also Pareto dominates the latter.
Thirdly, it is well recognized that subsidy can be regard as a negative tax. Accordingly, we analyze the superiority among the specific, demand and cost ad valorem subsidies in an industrial and export policies in chapter 4 of the dissertation. Given the same total output, we show that the demand ad valorem subsidy is the least efficient policy, regardless of whether it is measured in regard to the industrial or export subsidy policy. The superiority between the specific and cost ad valorem subsidies hinges upon economies or diseconomies of scale in the industry.
Generally speaking, if the market is imperfectly competitive, the traditional result is that an ad valorem tax is superior to a specific tax. However, we show in this dissertation that while considering (1) firms with cost uncertainty, or (2) the presence of cost difference and product differentiation, a specific tax can be superior to an ad valorem tax. This result is not only sharply different from the traditional result in literature, but can also be provided as possible explanations for practical examples that a specific tax is also popular in the real world. Furthermore, we show that the demand ad valorem subsidy is the least efficient policy in the above-mentioned three subsidy regimes, while the superiority between the specific and cost ad valorem subsidies hinges upon the economies or diseconomies of scale in the industry. This result provides a theoretical rationale for the phenomenon that the specific and the demand ad valorem subsidies are popular in the real world. | en_US |