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Unit tax versus ad valorem tax: A tax competition model with cross-border shopping

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  • Aiura, Hiroshi
  • Ogawa, Hikaru
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    Abstract

    Within the framework of spatial tax competition with cross-border shopping, we examine the choice of tax method between ad valorem tax and unit (specific) tax. This study shows that governments endogenously choose the ad valorem tax method not because of a classic welfare reason, but because it is a good strategy to compete for mobile consumers. Another key finding is that while governments are committed to the ad valorem tax method, the choice leads to inferior outcome; tax-cutting competition becomes more serious when countries adopt ad valorem tax, and competition in ad valorem tax results in smaller tax revenue than competition in unit tax.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Public Economics.

    Volume (Year): 105 (2013)
    Issue (Month): C ()
    Pages: 30-38

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    Handle: RePEc:eee:pubeco:v:105:y:2013:i:c:p:30-38

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    Web page: http://www.elsevier.com/locate/inca/505578

    Related research

    Keywords: Spatial tax competition; Cross-border shopping; Unit (specific) tax; Ad valorem tax;

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