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Tax competition and the creation of redundant products

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  • Charles A.M. De Bartolome

Abstract

. There are products that are assembled from kits but that, once assembled, are identical to other products. An example is the roll‐your‐own cigarette. Because the kit requires time to assemble, it is more costly than the assembled product; in the absence of tax competition, the kit is not bought or is ‘redundant.’ I show that tax competition between regions supports strategies that tax the ‘redundant’ product at a lower tax rate than its assembled counterpart, and it is bought. A welfare loss is thereby created. JEL classification: H71 Bien des produits peuvent être assemblés à partir de trousses. Une fois assemblés, ces produits sont identiques à d'autres produits. Un exemple est le fait de ≪rouler≫ ses propres cigarettes. Parce que la trousse réclame du temps pour l'assemblage, le produit coûte plus cher que le produit déjà assemblé; en l'absence de concurrence fiscale, on n'achète pas la trousse ou elle est ≪redondante≫. On montre que la concurrence fiscale entre régions supporte des stratégies qui taxent le produit ≪redondant≫à un taux plus bas que sa contrepartie assemblée, et que ce produit ≪redondant≫ est acheté. Une perte de bien‐être s'ensuit.

Suggested Citation

  • Charles A.M. De Bartolome, 2007. "Tax competition and the creation of redundant products," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 40(4), pages 1213-1236, November.
    • Handle: RePEc:wly:canjec:v:40:y:2007:i:4:p:1213-1236
    DOI: 10.1111/j.1365-2966.2007.00449.x
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    References listed on IDEAS

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    Cited by:

    1. Ian Irvine & William Sims, 2012. "A Taxing Dilemma: Assessing the Impact of Tax and Price Changes on the Tobacco Market," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 350, May.

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    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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