This paper considers the effects of destination vs. origin principles of intermediate commodity taxation on the organisational structure of firms in the presence of imperfectly competitive product and labour markets. The paper considers a unionised monopoly firm producing a final good by using two intermediate commodities, one of which can be imported. The paper shows that, when the origin principle is adopted, the ratio between the domestic and the foreign VAT rates on intermediates is relevant and organisational choices depend on this ratio, while VAT rates have no effects under the destination principle. In the case of linear or constant elasticity product demand curves, lower domestic rates will disincentive foreign sourcing, while lower foreign tax rates will represent an incentive.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.