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Commodity tax competition and industry location under the destination - and the origin - principle

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Author Info
Kristian, BEHRENS
Johnathan H. HAMILTON
Gianmarco I.P., OTTAVIANO

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Abstract

We develop a model of commodity tax competition with monopolistically competitive internationally mobile firms, transport costs, and asymmetric country sizes. We investigate the impacts of non-cooperative tax setting, as well as of tax harmonization and changes in the tax principle, in both the short and the long run. The origin principle, when compared to the destination principle, is shown to exacerbate tax competition and to erode tax revenues, yet leads to a more equal spatial distribution of economic activity. This suggests that federations which care about spatial inequality, like the European Union, face a non-trivial- choice for their tax principle that goes beyond the standard considerations of tax revenue redistribution.

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Publisher Info
Paper provided by Université catholique de Louvain, Département des Sciences Economiques in its series Discussion Papers (ECON - Département des Sciences Economiques) with number 2007020.

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Length: 41
Date of creation: 30 Jul 2007
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Handle: RePEc:ctl:louvec:2007020

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Related research
Keywords: commodity tax competitions; origin principle; destination principle; tax harmonization; industry location;

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Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
R12 - Urban, Rural, and Regional Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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References listed on IDEAS
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  2. Keen, Michael & Lahiri, Sajal & Raimondos-Moller, Pascalis, 2002. "Tax principles and tax harmonization under imperfect competition: A cautionary example," European Economic Review, Elsevier, vol. 46(8), pages 1559-1568, September. [Downloadable!] (restricted)
    Other versions:
  3. Haskel, Jonathan & Wolf, Holger, 2001. " The Law of One Price--A Case Study," Scandinavian Journal of Economics, Blackwell Publishing, vol. 103(4), pages 545-58, December. [Downloadable!] (restricted)
    Other versions:
  4. Kanbur, Ravi & Keen, Michael, 1993. "Jeux Sans Frontieres: Tax Competition and Tax Coordination When Countries Differ in Size," American Economic Review, American Economic Association, vol. 83(4), pages 877-92, September. [Downloadable!] (restricted)
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  5. Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-FranÁois Thisse, 2002. "Agglomeration and Trade Revisited," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 409-436, May. [Downloadable!] (restricted)
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  6. Andreas Haufler & Michael Pflüger, 2004. "International Commodity Taxation under Monopolistic Competition," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 6(3), pages 445-470, 08. [Downloadable!] (restricted)
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  7. Austan Goolsbee, 2001. "The Implications of Electronic Commerce for Fiscal Policy (and Vice Versa)," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 13-23, Winter. [Downloadable!] (restricted)
  8. Behrens, Kristian & Hamilton, Jonathan H. & Ottaviano, Gianmarco I.P. & Thisse, Jacques-Francois, 2007. "Commodity tax harmonization and the location of industry," Journal of International Economics, Elsevier, vol. 72(2), pages 271-291, July. [Downloadable!] (restricted)
  9. Ottaviano, Gianmarco I.P. & van Ypersele, Tanguy, 2005. "Market size and tax competition," Journal of International Economics, Elsevier, vol. 67(1), pages 25-46, September. [Downloadable!] (restricted)
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