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Peitz, Martin
Reisinger, Markus
Year of Publication: 
Series/Report no.: 
CESifo Working Paper No. 2583
This paper analyzes the effects of specific and ad valorem taxation in an industry with downstream and upstream oligopoly. We find that in the short run, i.e. when the number of firms in both markets is exogenous, the results concerning tax incidence tend to be qualitatively similar to models where the upstream market is perfectly competitive. However, both over- and undershifting are more pronounced, potentially to a very large extent. Instead, in the long run under endogenous entry and exit overshifting of both taxes is more likely to occur and is more pronounced under upstream oligopoly. As a result of this, a tax increase is more likely to be welfare reducing. We also demonstrate that downstream and upstream taxation are equivalent in the short run while this is not true for the ad valorem tax in the long run. We show that it is normally more efficient to tax downstream.
Specific tax
ad valorem tax
value-added tax
tax incidence
tax efficiency
indirect taxation
imperfect competition
vertical oligopoly
Document Type: 
Working Paper

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