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Tax coordination with different preferences for public goods: Conflict or harmony of interest?

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  • Andreas Haufler

Abstract

The paper analyzes strategic commodity taxation in a model with trade in a single private good that is simultaneously imported by consumers of a high-tax country and exported by its producers. Conditions for the existence of a Nash equilibrium are given, and an asymmetry is introduced through different preferences for public goods. Two tax coordination measures are discussed - a minimum tax rate and a coordinated increase in the costs of cross-border shopping. It is shown that tax coordination generally benefits the high-tax country while the low-tax country will gain only if the intensity of tax competition is high in the initial equilibrium or if governments are price-sensitive toward the effective marginal costs of public good supply.
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  • Andreas Haufler, 1996. "Tax coordination with different preferences for public goods: Conflict or harmony of interest?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 3(1), pages 5-28, January.
    • Handle: RePEc:kap:itaxpf:v:3:y:1996:i:1:p:5-28
    DOI: 10.1007/BF00400144
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    References listed on IDEAS

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