Welfare Comparison between Specific and Ad Valorem Export Trade Policy the Case of Multi-Domestic Firms

This paper extends the results obtained by Hwang et al. (1997) and Yang (2005) to the case of multi-domestic firms. Either the domestic government's budget constraint may be binding or there exists the social cost which caused by financing the export subsidy, we find that the policy of the specific export subsidy dominates that of ad valorem export subsidy and ad valorem export tax dominates specific export tax under the case of multi-domestic firms.cost heterogeneity, specific export subsidy, ad valorem export subsidy, tax distortion

NON-EQUIVALENCE OF SPECIFIC AND AD VALOREM TAXATION IN THE COMPETITIVE MARKET WITH TAX EVASION

The well-known equivalence between specific and ad valorem taxation in competitive markets may not hold in the presence of tax evasion. Evading specific taxes has to take place via concealing quantities sold, whereas evading ad valorem taxes can take place via concealing selling prices as well as quantities sold. We show that in the competitive market (i) this difference could make the equivalence of these two taxes break down, and (ii) specific taxation may be superior to ad valorem taxation if it causes firms to channel fewer resources into tax evasion, given other things being equal

SPECIFIC VERSUS AD VALOREM TAXATION WITH TAX EVASION IN IMPERFECTLY COMPETITIVE MARKETS

This paper calls into question the equivalence between specificand ad valorem taxation in the presence of tax evasion under imperfect competition. Once there is evasion, evading specific taxes has to take place via concealing quantities sold, whereas evading ad valorem taxes can take place via concealing selling prices as well as quantities sold. With this difference, we show that in imperfectly competitive markets (i) if per-unit taxes are the same, output will be larger under ad valorem taxation, and (ii) specifictaxation may be superior to ad valorem taxation if it causes firms to channel fewer resources into tax evasion