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Commodity tax competition and industry location under the destination - and the origin - principle

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  • Kristian, BEHRENS
  • Johnathan H. HAMILTON
  • Gianmarco I.P., OTTAVIANO

Abstract

We develop a model of commodity tax competition with monopolistically competitive internationally mobile firms, transport costs, and asymmetric country sizes. We investigate the impacts of non-cooperative tax setting, as well as of tax harmonization and changes in the tax principle, in both the short and the long run. The origin principle, when compared to the destination principle, is shown to exacerbate tax competition and to erode tax revenues, yet leads to a more equal spatial distribution of economic activity. This suggests that federations which care about spatial inequality, like the European Union, face a non-trivial- choice for their tax principle that goes beyond the standard considerations of tax revenue redistribution.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Département des Sciences Economiques in its series Discussion Papers (ECON - Département des Sciences Economiques) with number 2007020.

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Length: 41
Date of creation: 01 Jul 2007
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Handle: RePEc:ctl:louvec:2007020

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Keywords: commodity tax competitions; origin principle; destination principle; tax harmonization; industry location;

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References

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  1. Mintz, J. & Tulkens, H., 1984. "Commodity tax competition between member states of a federation: equilibrium and efficiency," CORE Discussion Papers 1984027, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  3. BEHRENS, Kristian & HAMILTON, Jonathan H. & OTTAVIANO, Gianmarco I.P. & THISSE, Jacques-François, 2007. "Commodity tax competition and industry location under the destination- and the origin-principle," CORE Discussion Papers 2007034, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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Cited by:
  1. Behrens, Kristian & Hamilton, Jonathan H. & Ottaviano, Gianmarco I.P. & Thisse, Jacques-François, 2009. "Commodity tax competition and industry location under the destination and the origin principle," Regional Science and Urban Economics, Elsevier, vol. 39(4), pages 422-433, July.
  2. Lenka Janíčková, 2012. "Tax Harmonization – the Possible Way out of the Crisis?," Český finanční a účetní časopis, University of Economics, Prague, vol. 2012(1), pages 64-81.

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