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International commodity taxation in the presence of unemployment

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  • MORICONI, Simone
  • SATO, Yasuhiro

Abstract

This paper analyses the effect of consumption taxes on unemployment in presence of wage rigidity and compares non-cooperative tax setting under the destination and origin principle of commodity taxation. We show that, in a two country economy, consumption taxes negatively affect domestic employment and cause an employment externality which is negative under the destination and positive under the origin principle. Whereas the non-cooperative tax rate is inefficiently high under both principles, we show that, when the level of rigid wages is high, the origin principle is superior to the destination principle from the viewpoint of employment as well as social welfare.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2006069.

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Date of creation: 00 Sep 2006
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Handle: RePEc:cor:louvco:2006069

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Keywords: commodity taxation; destination principle; origin principle and unemployment;

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Citations

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Cited by:
  1. Hikaru Ogawa & Hiroshi Aiura, 2012. "Unit Tax versus Ad Valorem Tax: A Tax Competition Model with Cross-border Shopping," ERSA conference papers ersa12p428, European Regional Science Association.
  2. Sebastian Braun & Christian Spielmann, 2010. "Wage subsidies and international trade: When does policy coordination pay?," Kiel Working Papers 1599, Kiel Institute for the World Economy.
  3. MORICONI, Simone & SATO, Yasuhiro, 2006. "International commodity taxation in the presence of unemployment," CORE Discussion Papers 2006069, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Aiura, Hiroshi & Ogawa, Hikaru, 2013. "Unit tax versus ad valorem tax: A tax competition model with cross-border shopping," Journal of Public Economics, Elsevier, vol. 105(C), pages 30-38.

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