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Network externalities, trade costs, and the choice of commodity taxation principle

Author

Listed:
  • Tsaur-Chin Wu

    (Feng Chia University)

  • Chih-Ta Yen

    (National Taichung University of Science and Technology)

  • Hsiu-Wei Chang

    (National Taiwan University)

Abstract

This paper provides a new explanation for the choice of commodity tax principle when introducing network externalities into the intra-industry trade model. First, regardless of the destination or origin principle, when the network externalities are strong (weak), the optimal commodity tax rate in the presence of network externality is positive (negative) and higher (lower) than that without network externality. Second, the interplay between network externalities and trade costs affects the difference in commodity tax rates, influencing the differences in firms’ profits, consumer surplus, tax revenues, and social welfare. Third, if the origin principle’s commodity tax rate is higher (lower) than the destination principle’s, the origin principle’s social welfare level is lower (higher) than the destination principle’s.

Suggested Citation

  • Tsaur-Chin Wu & Chih-Ta Yen & Hsiu-Wei Chang, 2023. "Network externalities, trade costs, and the choice of commodity taxation principle," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(5), pages 1203-1224, October.
    • Handle: RePEc:kap:itaxpf:v:30:y:2023:i:5:d:10.1007_s10797-022-09740-2
    DOI: 10.1007/s10797-022-09740-2
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    References listed on IDEAS

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    More about this item

    Keywords

    Network externalities; Trade costs; Commodity tax principle;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • F15 - International Economics - - Trade - - - Economic Integration
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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