Ira Gang
Rutgers University
Department of Economics
E-mail: gang@economics.rutgers.edu

Item Number:  [J34]
Title: A Comparison of Sales Taxes
Abstract: Four main types of ad valorem sales taxes, the retail sales tax, the value added tax, a cascading sales tax and a manufacturer's sales tax are compared in a partial equilibrium model with a competitive intermediate goods industry and a non-competitive final goods industry. The retail sales tax and the VAT, which are equivalent in the absence of uncertainty, must be levied at a higher rate than a cascading tax to ensure equal revenue yield. However, output under a retail sales tax exceeds that under a cascading sales tax and deadweight losses are lower if both tax rates are such that there is a positive relation between them and tax yield. The equal yield manufacturer's sales tax has a higher tax rate, lower output and greater deadweight loss than the other three sales taxes.

Reference:  Arindam Das-Gupta and Ira N. Gang, A Comparison of Sales Taxes (with Arindam Das-Gupta)Public Finance, 51 (1996) 217-225. Published in 1998.

Co-Author Information:
Arindam Das-Gupta
Indira Gandhi Institute of Development Research
E-Mail:  oldmonk87@yahoo.com

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