Open Access Journal Article

Welfare Effects of Commodity Taxation

by Fritz Helmedag a,* orcid
a
Economics Department, Chemnitz University of Technology, Chemnitz, Germany
*
Author to whom correspondence should be addressed.
JEA  2023, 22; 2(2), 22; https://doi.org/10.58567/jea02020001
Received: 17 February 2023 / Accepted: 30 March 2023 / Published Online: 31 March 2023
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Abstract

In reality firms most often face negatively sloped demand curves. Then, for a given level of consumers’ surplus, levies on prices yield higher fiscal revenues than specific duties. Therefore, according to the prevailing view, the switch from unit to ad valorem taxation is supposed to generate more welfare; some even speak of an associated Pareto-improvement. However, this is not true because taxing prices merely transfers profits to the Treasury, while total rent remains unaffected. Since excise duties diminish the welfare gain in comparison with untaxed trade, an appropriately designed income tax allows all parties to benefit. Sales should be taxed only exceptionally.

Keywords: Commodity taxation, Unit taxation, Ad valorem taxation;
Copyright: © 2023 by Helmedag. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) (Creative Commons Attribution 4.0 International License). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.
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ACS Style
Helmedag, F. Welfare Effects of Commodity Taxation. Journal of Economic Analysis, 2023, 2, 22. https://doi.org/10.58567/jea02020001
AMA Style
Helmedag F. Welfare Effects of Commodity Taxation. Journal of Economic Analysis; 2023, 2(2):22. https://doi.org/10.58567/jea02020001
Chicago/Turabian Style
Helmedag, Fritz 2023. "Welfare Effects of Commodity Taxation" Journal of Economic Analysis 2, no.2:22. https://doi.org/10.58567/jea02020001
APA style
Helmedag, F. (2023). Welfare Effects of Commodity Taxation. Journal of Economic Analysis, 2(2), 22. https://doi.org/10.58567/jea02020001

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