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Tax Competition under Minimum Rates: The Case of European Diesel Excises

Author

Listed:
  • Michiel Evers

    (Faculty of Economics, Erasmus Universiteit Rotterdam)

  • Ruud A. de Mooij

    (Faculty of Economics, Erasmus Universiteit Rotterdam)

  • Herman R.J. Vollebergh

    (Faculty of Economics, Erasmus Universiteit Rotterdam)

Abstract

This paper estimates Nash-type fiscal reaction functions for European governments competing for revenue from diesel excises. It appears that European governments strategically set their excise levels by responding to their neighbors’ tax rates. This provides evidence for the presence of tax competition in diesel excises. In fact, a 10% higher rate in neighboring countries (in terms of the user price) induces a country to raise its own rate by between 2 and 3%. This impact is robust for alternative specifications. By imposing restrictions on excise levels, EU harmonization of excises in 1987 and the introduction of a minimum in 1992 exerted a positive impact on the excise level in a number of EU countries. It has not, however, significantly reduced the intensity of tax competition. Indeed, strategic tax responses have not significantly been reduced by these harmonization policies. We also find that high-tax countries appear to compete more aggressively tha! n low-tax countries in the sense that they feature larger strategic tax responses. There is no significant difference between large and small countries.

Suggested Citation

  • Michiel Evers & Ruud A. de Mooij & Herman R.J. Vollebergh, 2004. "Tax Competition under Minimum Rates: The Case of European Diesel Excises," Tinbergen Institute Discussion Papers 04-062/3, Tinbergen Institute.
  • Handle: RePEc:tin:wpaper:20040062
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    References listed on IDEAS

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    Cited by:

    1. DE BORGER, Bruno & MAYERES, Inge, "undated". "Taxation of car-ownership, car use and public transport: Insight derived from a discrete choice numerical optimisation model," Working Papers 2004021, University of Antwerp, Faculty of Business and Economics.
    2. Ian Parry & Herman R. J. Vollebergh, 2016. "Reforming the EU Energy Tax Directive: Assessing the Options," CESifo Working Paper Series 5749, CESifo.
    3. Mandell, Svante & Proost, Stef, 2016. "Why truck distance taxes are contagious and drive fuel taxes to the bottom," Journal of Urban Economics, Elsevier, vol. 93(C), pages 1-17.
    4. Charles McLure, 2009. "Taxing commercial motor fuel in the European Union: the case for an apportionment-based, destination-principle system," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(3), pages 395-414, June.
    5. Jan Jacobs & Jenny Ligthart & Hendrik Vrijburg, 2010. "Consumption tax competition among governments: Evidence from the United States," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(3), pages 271-294, June.
    6. Ben Lockwood & Giuseppe Migali, 2009. "Did The Single Market Cause Competition in Excise Taxes? Evidence From EU Countries," Economic Journal, Royal Economic Society, vol. 119(536), pages 406-429, March.
    7. Axel Dreher & Tim Krieger, 2004. "Do gasoline prices converge in a unified Europe with non-harmonized tax rates?," TWI Research Paper Series 2, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
    8. Vollebergh, Herman, 2013. "Environmental Taxes and Green Growth," Other publications TiSEM 9efd8e7a-397e-428f-95be-c, Tilburg University, School of Economics and Management.
    9. Axel Dreher & Tim Krieger, 2010. "Diesel price convergence and mineral oil taxation in Europe," Applied Economics, Taylor & Francis Journals, vol. 42(15), pages 1955-1961.
    10. Richard M. Bird, 2004. "Getting it Right: Financing Urban Development in China," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0435, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    11. Sen, Suphi & Vollebergh, Herman, 2018. "The effectiveness of taxing the carbon content of energy consumption," Journal of Environmental Economics and Management, Elsevier, vol. 92(C), pages 74-99.
    12. Michael Keen & Jon Strand, 2007. "Indirect Taxes on International Aviation," Fiscal Studies, Institute for Fiscal Studies, vol. 28(1), pages 1-41, March.
    13. Federico Revelli, 2005. "On Spatial Public Finance Empirics," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(4), pages 475-492, August.
    14. Laszlo Paizs, 2010. "Asymmetric Competition in the Setting of Diesel Excise Taxes in EU Countries," CERS-IE WORKING PAPERS 1012, Institute of Economics, Centre for Economic and Regional Studies.
    15. repec:dgr:rugsom:07008 is not listed on IDEAS
    16. Paizs, László, 2009. "Gázolaj-jövedékiadó verseny az Európai Unióban [Fiscal competition on the market for diesel fuel in the European Union]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(3), pages 216-238.

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    More about this item

    Keywords

    Diesel excise; Strategic tax setting; Minimum rates; European Union;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • R4 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics

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