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Please note that all times are shown in the time zone of the conference. The current conference time is: 27th Nov 2021, 02:11:04am GMT

 
 
Session Overview
Session
C05: Indirect Taxation: Theory
Time:
Wednesday, 18/Aug/2021:
2:15pm - 3:45pm


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Presentations
2:15pm - 2:37pm

The Cost Of Public Funding With Direct And Indirect Taxation – A Revisit

Katinka Holtsmark1, Bjart Holtsmark2

1University of Oslo, Norway; 2Statistics Norway, Norway

We show in this paper that the marginal cost of public funds (MCF) does not depend on whether public revenue is collected by taxation of consumer goods or by taxation of income from factors supplied on the market by households. Atkinson and Stern (1974) concluded in their seminal paper that "[...] whether the Conventional Rule provides an under- or over-estimate depends on the choice of taxed good [....]." Although this conclusion can be interpreted in different ways, it has created confusion in the literature on the MCF and has been the basis for literature arguing that the standard measure of the MCF has weaknesses and should be replaced by alternative measures (Jacobs, 2018; Jacobs & de Mooij, 2015; Håkonsen, 1998). We show that the choice between direct and indirect taxation does not affect the MCF.

Holtsmark-The Cost Of Public Funding With Direct And Indirect Taxation – A Revisit-429.pdf


2:37pm - 3:00pm

A Welfare Comparison of Ad Valorem and Specific Taxes in Multi-Product Markets

Adam Dearing

The Ohio State University, United States of America

We examine the efficiency ranking of ad valorem vs. specific taxes in multi-product markets using a general framework that admits flexible substitution patterns, various ownership structures and conduct, and marginal cost heterogeneity. First, we consider a single tax rate applied to all products. With symmetric costs, we provide new results regarding dominance of ad valorem taxes. With asymmetric costs, we provide a useful sufficient conditions for the specific tax to welfare dominate and discuss when this is more ore less likely under various forms of conduct.

We also provide welfare comparison for good-specific tax rates on substitutable goods. When firms have market power, we show that the ad valorem taxes dominate, even with arbitrary cost heterogeneity.

Our results suggest that both market power and the ability to target tax rates to specific goods support ad valorem taxes, while certain forms of cost heterogeneity work in favor of specific taxes.

Dearing-A Welfare Comparison of Ad Valorem and Specific Taxes-356.pdf


3:00pm - 3:22pm

The Optimal Taxation Of Air Travel Under Monopolistic Dynamic Pricing

Lennart Stern

PSE-EHESS, France

This article re-examines the question of how to optimally tax air travel within the model from Gallego and van Ryzin (1994) in which a monopolistic airline chooses its dynamic pricing policy to sell tickets to randomly arriving consumers over a finite time horizon until the plane departs. In general, the profit-maximizing policy differs from the welfare-maximizing policy. However, for a certain class of demand functions that includes constant elasticity and exponential demand functions, a simple policy instrument, namely a tax on vacant seats is sufficient to perfectly align profit maximization incentives with welfare maximization. Calibrating the model to predict a load factor of 80% (the current global average), the welfare-maximizing tax on vacant seats leads to load factors of 97% for the constant elasticity demand function and 98% for the exponential demand function.

Stern-The Optimal Taxation Of Air Travel Under Monopolistic Dynamic Pricing-505.pdf


3:22pm - 3:45pm

Tax Avoidance and the Choice of Tax Base

Brian David Galle1, David Gamage2, Yulia Kuchumova3

1Georgetown University, United States of America; 2Indiana University; 3State University - Higher School of Economics

We provide a general model of the optimal mix of income and consumption taxes in the presence of tax avoidance. We find a Ramsey-type result in which each of

income and consumption taxes should be imposed in inverse proportion to the combined elasticity of real and avoidance responses to the respective tax. Contrary to some prior results, we find that consumption taxes are optimally non-zero across a variety of settings, and in particular when the (weighted) elasticity of taxable income with respect to the income tax is greater than the cross-elasticity of taxable income with respect to the consumption tax. We then implement a calibration exercise in which we estimate this cross-elasticity using voting on local sales-tax increases in California. Our estimates suggest non-zero sales taxes would be efficient for more than nine-tenths of the distribution of potential outcomes.

Galle-Tax Avoidance and the Choice of Tax Base-113.pdf


 
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