Postprint version. Published in Journal of Public Economics, Volume 71, Issue 2, February 1, 1999, pages 233-245. Copyright © 2003 Elsevier Science S.A. All rights reserved. The definitive version is available at http://dx.doi.org/10.1016/S0047-2727(98)00066-8.
NOTE: At the time of publication, the author Stephen Hamilton was not yet affiliated with Cal Poly.
This paper presents a methodological approach for the analysis of tax incidence that encompasses familiar forms of taxation in a general and analytically convenient model. In oligopolistic industries, the performance of a tax depends on the sensitivity of the unit tax rate to changes in industry output. Output-elastic tax schedules are less likely to be over-shifted and have superior welfare properties relative to regulatory instruments that are less responsive to the equilibrium market quantity. For revenue neutral tax reforms, the finding of Delipalla and Keen (1992) that ad valorem taxes welfare-dominate specific taxes under oligopoly is derived as a special case of this general result.