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Destination‐based vs. Origin‐based Commodity Taxation in Large Open Economies with Unemployment

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  • Fabio Antoniou
  • Panos Hatzipanayotou
  • Nikos Tsakiris

Abstract

We construct a perfectly competitive model of two symmetric countries producing tradable commodities and a public consumption good. Destination‐ or origin‐based taxes are levied on the consumption of the tradable goods. In both countries, a fixed wage leads to involuntary unemployment. We derive the Nash equilibrium consumption taxes under the two taxation principles with endogenous world prices, and compare them to (i) the cooperative rates, and (ii) the rates when world prices are fixed. We demonstrate that with endogenous world prices, the induced terms‐of‐trade effects cancel out under the destination principle, but they prevail under the origin principle of taxation. Nash equilibrium destination‐based taxes are inefficiently low when the exporting sector in each country is non‐labour‐intensive. The Nash equilibrium origin‐based taxes can be either higher or lower than the corresponding cooperative rates.

Suggested Citation

  • Fabio Antoniou & Panos Hatzipanayotou & Nikos Tsakiris, 2019. "Destination‐based vs. Origin‐based Commodity Taxation in Large Open Economies with Unemployment," Economica, London School of Economics and Political Science, vol. 86(341), pages 67-86, January.
  • Handle: RePEc:bla:econom:v:86:y:2019:i:341:p:67-86
    DOI: 10.1111/ecca.12235
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    Cited by:

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    2. Fabio Antoniou & Panos Hatzipanayotou & Nikos Tsakiris, 2023. "Regulatory Stringency and Emission Leakage Mitigation," DEOS Working Papers 2302, Athens University of Economics and Business.
    3. Fabio Antoniou & Panos Hatzipanayotou & Michael S. Michael & Nikos Tsakiris, 2022. "Tax competition in the presence of environmental spillovers," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(3), pages 600-626, June.
    4. Hiroshi Aiura & Hikaru Ogawa, 2021. "Does E-Commerce Ease or Intensify Tax Competition? Destination Principle vs. Origin Principle," CIRJE F-Series CIRJE-F-1169, CIRJE, Faculty of Economics, University of Tokyo.
    5. Fabio Antoniou & Panos Hatzipanayotou & Michael S. Michael & Nikos Tsakiris, 2019. "On the Principles of Commodity Taxation under Interregional Externalities," University of Cyprus Working Papers in Economics 03-2019, University of Cyprus Department of Economics.

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