Commodity Tax Harmonization with Public Goods - An Alternative Perspective
AbstractThis paper investigates whether it is possible to find Pareto-improving commodity tax reforms that harmonize taxes between two countries when governments supply public goods and thus have revenue requirements. To focus on the basic issues, we consider a Ricardian model of trade with elastic factor supply and two traded goods, and suppose that initial taxes are Nash equilibrium ones. This allows a complete characterization of the conditions under which Pareto-improving reforms exist using simple geometric arguments. These conditions are completely determined by: (i) the configuration of initial taxes across countries; and (ii) whether the two goods are substitutes or complements. An example suggests that harmonization is unlikely to be Pareto-improving if the revenue requirement is high, and the demand for imports relatively price elastic, in both countries. An alternative definition of harmonization, difference harmonization, which may yield Pareto-improvements under more general conditions, is proposed.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1304.
Date of creation: Dec 1995
Date of revision:
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Other versions of this item:
- Ben Lockwood, . "Commodity Tax Harmonisation with Public Goods - an Alternative Perspective," EPRU Working Paper Series 95-10, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
- Lockwood, B., 1995. "Commodity Tax Hamonisation with Public Goods - An Alternative Perspective," Discussion Papers 9503, Exeter University, Department of Economics.
- 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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