From Each According to His Surplus: Equi-Proportionate Sharing of Commodity Tax Burdens
James R. Hines, Jr., John C. Hlinko, Theodore J.F. Lubke
NBER Technical Working Paper No. 138
This paper examines the incidence of commodity taxes, finding that, when demand and marginal cost schedules are linear. the burden of commodity taxation is distributed between buyers and sellers so that each suffers the same percentage reduction on pre-tax surplus. This equiproportionate reduction in surplus is the outcome of commodity taxes set at any rate, and is unaffected by relative demand and supply elasticities. Hence, when demand and marginal cost schedules are linear, commodity taxes resemble flat-rate taxes imposed on market surplus. Similar results apply to nonlinear schedules with certain ranges.
Published: Journal of Public Economics, vol 58, no 3, November 1995, pp 417-428.