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Does Indirect Tax Harmonization Deliver Pareto Improvements in the Presence of Global Public Goods?

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Author Info
Ourania Karakosta ()
Christos Kotsogiannis ()
Miguel-Angel Lopez-Garcia ()

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Abstract

This paper identifies conditions under which, starting from any tax distorting equilibrium, destination- and origin-based indirect tax-harmonizing reforms are potentially Pareto improving in the presence of global public goods. The first condition (unrequited transfers between governments) requires that transfers are designed in such a way that the marginal valuations of the global public goods are equalized, whereas the second (conditional revenue changes) requires that the change in global tax revenues, as a consequence of tax harmonization, is consistent with the direction of inefficiency in global public good provision relative to the (modified) Samuelson rule. Under these conditions, tax harmonization results in redistributing the gains from a reduction in global deadweight loss and any changes in global tax revenues according to the Pareto principle. And this is the case independently of the tax principle in place (destination or origin).

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 2668.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2668

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Related research
Keywords: origin principle; destination principle; indirect tax harmonization; reform of commodity taxes; global/local public goods;

Find related papers by JEL classification:
F15 - International Economics - - Trade - - - Economic Integration
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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    Other versions:
  2. Michael Smart, 1998. "Taxation and Deadweight Loss in a System of Intergovernmental Transfers," Canadian Journal of Economics, Canadian Economics Association, vol. 31(1), pages 189-206, February.
  3. Wildasin, David E, 1991. "Income Redistribution in a Common Labor Market," American Economic Review, American Economic Association, vol. 81(4), pages 757-74, September. [Downloadable!] (restricted)
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    Other versions:
  5. Keen, Michael & Lahiri, Sajal, 1993. "Domestic tax reform and international oligopoly," Journal of Public Economics, Elsevier, vol. 51(1), pages 55-74, May. [Downloadable!] (restricted)
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  7. Lopez-Garcia, Miguel-Angel, 1998. "On welfare and revenue effects of indirect tax harmonization," Economics Letters, Elsevier, vol. 60(2), pages 185-193, August. [Downloadable!] (restricted)
  8. Lockwood, Ben, 2001. "Tax competition and tax co-ordination under destination and origin principles: a synthesis," Journal of Public Economics, Elsevier, vol. 81(2), pages 279-319, August. [Downloadable!] (restricted)
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  9. Kotsogiannis, Christos & Lopez-Garcia, Miguel-Angel & Myles, Gareth D., 2005. "The origin principle, tax harmonization and public goods," Economics Letters, Elsevier, vol. 87(2), pages 211-219, May. [Downloadable!] (restricted)
  10. Nigar Hashimzade & Hassan Khodavaisi & Gareth Myles, 2005. "Tax Principles, Product Differentiation and the Nature of Competition," International Tax and Public Finance, Springer, vol. 12(6), pages 695-712, November. [Downloadable!] (restricted)
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  13. Christos Kotsogiannis & Miguel-Angel Lopez-Garcia, 2007. "Imperfect competition, indirect tax harmonization and public goods," International Tax and Public Finance, Springer, vol. 14(2), pages 135-149, April. [Downloadable!] (restricted)
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