Failure of Ad Valorem and Specific Tax Equivalence Under Uncertainty

22 Pages Posted: 3 Oct 2012

See all articles by Laszlo Goerke

Laszlo Goerke

University of Trier - Institute of Labour Law and Industrial Relations in the European Union; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Frederik Herzberg

Bielefeld University - Center for Mathematical Economics

Thorsten Upmann

Helmholtz Institute for Functional Marine Biodiversity at the University of Oldenburg; Bielefeld University - Department of Business Administration and Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: September 28, 2012

Abstract

Applying a framework of perfect competition under uncertainty, we contribute to the discussion of whether or not ad valorem taxes and specific taxes are equivalent. While this equivalence holds without price uncertainty, we show that ad valorem taxes and specific taxes are “almost never” equivalent in the presence of uncertainty if we demand equivalence to hold pathwise. Since we obtain this result under perfect competition, our analysis also provides a further rationale for why the equivalence must fail under imperfect competition.

Keywords: ad valorem taxes and specific taxes, revenue neutrality, price uncertainty, concept of pathwise neutrality

JEL Classification: H200, H210, H610

Suggested Citation

Goerke, Laszlo and Herzberg, Frederik and Upmann, Thorsten, Failure of Ad Valorem and Specific Tax Equivalence Under Uncertainty (September 28, 2012). CESifo Working Paper Series No. 3946, Available at SSRN: https://ssrn.com/abstract=2155609

Laszlo Goerke

University of Trier - Institute of Labour Law and Industrial Relations in the European Union ( email )

Behringstraße 21, 7. Floor, Building H
Trier, 54296
Germany

HOME PAGE: http://www.iaaeu.de/

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

IZA Institute of Labor Economics

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Bonn, D-53072
Germany

Frederik Herzberg

Bielefeld University - Center for Mathematical Economics ( email )

Postfach 10 01 31
Bielefeld, D-33501
Germany

Thorsten Upmann (Contact Author)

Helmholtz Institute for Functional Marine Biodiversity at the University of Oldenburg ( email )

Ammerländer Heerstraße 231
Oldenburg, 26129
Germany

Bielefeld University - Department of Business Administration and Economics ( email )

P.O. Box 100131
D-33501 Bielefeld, NRW 33501
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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