Fair Commodity Taxation
TLDR
This paper analyzes how correlation in consumer valuations affects fairness in monopolistic markets and the role of taxation.
Key contributions
- Analyzes how correlated consumer valuations distort fairness of consumer surplus in monopolistic markets.
- Identifies correlation shifts that make consumer surplus distribution more or less fair.
- Demonstrates that tax authorities gain no benefit from randomizing good allocations.
- Characterizes fairness-efficiency frontier mechanisms, showing they ration goods more than monopolists.
Why it matters
This paper provides insights into designing fair taxation policies in markets with monopolists and correlated consumer preferences. It offers a framework for understanding how to balance fairness and efficiency, particularly relevant for luxury goods.
Original Abstract
We study economies where consumers interact independently with many monopolists. When consumer valuations over goods are correlated, correlation can distort the induced distribution of consumer surplus (information rents). We identify which shifts in the correlation structure over values makes the induced distribution more or less fair, in the sense of second order stochastic dominance. We then investigate the role taxation can have on information rents, and show the tax authority never benefits from randomizing the allocation of goods. We characterize the set of mechanisms that are on the fairness-efficiency frontier under regularity conditions on the distribution of types. Furthermore, under these conditions all allocations on the fairness-efficiency frontier ration the good more than an unregulated monopolist. Finally, we discuss implications of our model for luxury commodity taxation.
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