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Revenue functions and Dupuit curves for indirect taxes with cross-border shopping

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  • Jørgen Aasness
  • Odd Nygård

Abstract

Norway imposes some of the highest tax rates on alcoholic beverages and tobacco in the world, making, e.g., cross-border shopping an attractive activity for Norwegians. In light of this fact, we pose the question: Could we increase the total tax revenue from indirect taxes by decreasing tax rates on, e.g., spirits in Norway? When using an empirically based consumer model including cross-border shopping, tax-free shopping, and smuggling, we do find revenue curves implying total tax revenue maximizing tax rates. But we also find that these tax rates are always higher than the observed tax rates, i.e., suggesting that the answer to our question is no. In addition, we compare our results to a closed economy setting without cross-border shopping, etc. We find that the existence of cross-border shopping, etc. affects the shape of the revenue curves somewhat, although not dramatically. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Jørgen Aasness & Odd Nygård, 2014. "Revenue functions and Dupuit curves for indirect taxes with cross-border shopping," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(2), pages 272-297, April.
    • Handle: RePEc:kap:itaxpf:v:21:y:2014:i:2:p:272-297
    DOI: 10.1007/s10797-013-9268-x
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    1. Sanz-Sanz, José Félix, 2022. "A full-fledged analytical model for the Laffer curve in personal income taxation," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 795-811.

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    More about this item

    Keywords

    Revenue functions; Indirect taxes; Excise taxes; Alcohol; Tobacco; Cross-border shopping; Smuggling; Tax-free shopping; Complete demand systems; Consumer behavior; Laffer curves; Dupuit curves; D6; D12; H2; H31;
    All these keywords.

    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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