Scandinavian Working Papers in Economics

Discussion Paper Series in Economics,
Norwegian School of Economics, Department of Economics

No 23/2023: The legal incidence of ad valorem taxes matters

Wilfried Pauwels and Fred Schroyen ()
Additional contact information
Wilfried Pauwels: University of Antwerp, Postal: Universiteit Antwerpen, Department of Economics, Prinsstraat 13, 2000 Antwerpen, Belgium
Fred Schroyen: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH, Department of Economics, Helleveien 30, N-5045 Bergen, Norway

Abstract: It is well known that, for a specific tax, its economic incidence does not depend on which side of the market has the legal obligation to pay the tax. In this paper, we show that, for an ad valorem tax, this legal incidence does matter for the economic incidence. In particular, when a government imposes an ad valorem tax rate on the sale of a commodity, the resulting reduction in the market equilibrium level of sales will be larger when sellers are obliged to pay the tax than when buyers are obliged to pay the tax

Keywords: economic incidence; legal incidence; statutory incidence; ad valorem taxes; invariance theorem

JEL-codes: H22

Language: English

13 pages, First version: December 19, 2023. Revised: March 12, 2024.

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