Rational Self-Taxation: Complementary Inputs and Excise Taxation.

This paper examines the conditions under which some resource owners would support the levying of an exc ise tax on the sales of a good to which they supply inputs in product ion. In the three-factor model considered, the supply of one input is perfectly elastic. Two other factors are substitutes for this input, but complementary to each other. An excise tax on the final product changes factor proportions in favor of one of the two complementary i nputs. The distribution of the gains between inputs is shown to depen d on their partial elasticity of substitution, their supply elasticit ies, and factor shares.