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Regulation Through Output Related Profits Tax

Stephen Glaister
The Journal of Industrial Economics
Vol. 35, No. 3 (Mar., 1987), pp. 281-296
Published by: Wiley
DOI: 10.2307/2098635
Stable URL: http://www.jstor.org/stable/2098635
Page Count: 16
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Regulation Through Output Related Profits Tax
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Abstract

Prospects are discussed for regulating a multiproduct, monopolistic enterprise through a tax on profit at a rate variable with output. Selection of weights when defining output could induce outcomes ranging from Ramsey pricing to any desired pattern of cross subsidy. The telecommunications industry is used to illustrate. If quality depends upon output (as in public transport), socially optimal pricing would be induced. The scheme has the advantage of limiting detailed intervention and preserving the profit motive. However, unrealistic assumptions are necessary and implementation would require a great deal of information. This limits its practical value.

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