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Destination vs. Origin-based Commodity Taxation and the Location of Industry

Author

Listed:
  • Kristian Behrens

    (CORE - Center of Operation Research and Econometrics [Louvain] - UCL - Université Catholique de Louvain = Catholic University of Louvain)

  • Jonathan H. Hamilton

    (UF - University of Florida [Gainesville])

  • Gianmarco I.P. Ottaviano

    (UNIBO - Alma Mater Studiorum Università di Bologna = University of Bologna, FEEM - Fondazione Eni Enrico Mattei - Fondazione Eni Enrico Mattei, CEPR - Center for Economic Policy Research)

  • Jacques-François Thisse

    (CORE - Center of Operation Research and Econometrics [Louvain] - UCL - Université Catholique de Louvain = Catholic University of Louvain, CEPR - Center for Economic Policy Research, PJSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

We study the positive implications of commodity taxation and tax harmonization under the destination and origin principles when firms are monopolistic competitors facing variable demand elasticity and segmented markets. Our emphasis is on the international location of firms in the presence of market size asymmetries and trade costs. Under the destination principle, an increase in the tax rate of a country always causes some firms to relocate to the other. This effect may be reversed under the origin principle when economic integration is deep enough. Under tax harmonization the choice of a common tax principle is irrelevant for the market outcomes and for the global tax revenues. It affects, however, the distribution of revenues between small and large countries.

Suggested Citation

  • Kristian Behrens & Jonathan H. Hamilton & Gianmarco I.P. Ottaviano & Jacques-François Thisse, 2007. "Destination vs. Origin-based Commodity Taxation and the Location of Industry," PSE-Ecole d'économie de Paris (Postprint) halshs-00754215, HAL.
    • Handle: RePEc:hal:pseptp:halshs-00754215
    DOI: 10.1016/j.jinteco.2006.08.002
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    Cited by:

    1. Raimondos-Møller, Pascalis & Schmitt, Nicolas, 2010. "Commodity taxation and parallel imports," Journal of Public Economics, Elsevier, vol. 94(1-2), pages 153-162, February.

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