Reexamining Ad Valorem and Specific Taxation under Uncertainty

This study investigates the specific tax and ad valorem tax under uncertainty.We show: (1) Under cost uncertainty, the specific tax may be superior to the ad valorem tax regardless of whether the market is characterized by a monopoly or oligopoly. When the market is perfectly competitive, the specific tax is superior to the ad valorem tax. (2) Under demand uncertainty, the ad valorem tax is preferred to the specific tax under both monopoly and oligopoly. Both taxes are equivalent when the market is competitive.