Definition
PA: agent price (the price that the agent really pay or get)
PM: market price (can be regarded as the "plain price", or "price with no tax"
If agent is consumer, T > 1 is a tax (the consumer spent more money) and T < 1 is a subsidy
If agent is producer, T > 1 is a subsidy (the producer get more money) and T < 1 is a tax
If there is 5% tax
- For consumer, the power of tax would be 1+5% = 105%
- For producer, the power of tax would be 1-5% = 95%
So we have:
VOM - VOA = (PM - PS)QO = PM(1 - TO)QO
Where TO is the power of ad valorem tax
TO = 1 + t
t is the ad valorem tax rate, expressed in % change.
Here w summarized the notions of tax and price used in GTAP model:
Just note that the market price are PM or PMES (for sluggish endowment)
while the agent price are:
- Supply (for both tradable and endowment)
- PS
- Demand for both tradable and endowment)
- PP, PG, PF, PFE
For supply, we use VOA or VOM
For demand, we use VXA and VXM, where X are P, G, F for agents