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Tax Competition under Minimum Rates: The Case of European Diesel Excises

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  • Michiel Evers

    ()
    (Faculty of Economics, Erasmus Universiteit Rotterdam)

  • Ruud A. de Mooij

    ()
    (Faculty of Economics, Erasmus Universiteit Rotterdam)

  • Herman R.J. Vollebergh

    ()
    (Faculty of Economics, Erasmus Universiteit Rotterdam)

Abstract

This paper estimates Nash-type fiscal reaction functions for European governments competing for revenue from diesel excises. It appears that European governments strategically set their excise levels by responding to their neighbors’ tax rates. This provides evidence for the presence of tax competition in diesel excises. In fact, a 10% higher rate in neighboring countries (in terms of the user price) induces a country to raise its own rate by between 2 and 3%. This impact is robust for alternative specifications. By imposing restrictions on excise levels, EU harmonization of excises in 1987 and the introduction of a minimum in 1992 exerted a positive impact on the excise level in a number of EU countries. It has not, however, significantly reduced the intensity of tax competition. Indeed, strategic tax responses have not significantly been reduced by these harmonization policies. We also find that high-tax countries appear to compete more aggressively tha! n low-tax countries in the sense that they feature larger strategic tax responses. There is no significant difference between large and small countries.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 04-062/3.

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Date of creation: 03 Jun 2004
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Handle: RePEc:dgr:uvatin:20040062

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Web page: http://www.tinbergen.nl

Related research

Keywords: Diesel excise; Strategic tax setting; Minimum rates; European Union;

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  1. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  2. Devereux, Michael P. & Lockwood, Ben & Redoano, Michela, 2008. "Do countries compete over corporate tax rates?," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1210-1235, June.
  3. Michael P. Devereux & Rachel Griffith & Alexander Klemm, 2002. "Corporate income tax reforms and international tax competition," Economic Policy, CEPR & CES & MSH, vol. 17(35), pages 449-495, October.
  4. Zodrow, George R, 2003. "Tax Competition and Tax Coordination in the European Union," International Tax and Public Finance, Springer, vol. 10(6), pages 651-71, November.
  5. Ruud A. de Mooij & Sjef Ederveen, 2001. "Taxation and Foreign Direct Investment: A Synthesis of Empirical Research," CESifo Working Paper Series 588, CESifo Group Munich.
  6. Sijbren Cnossen, 2002. "Tax Policy in the European Union: A Review of Issues and Options," CESifo Working Paper Series 758, CESifo Group Munich.
  7. Ravi Kanbur & Michael Keen, 1991. "Jeux Sans Frontieres: Tax Competition and Tax Coordination when Countries Differ in Size," Working Papers 819, Queen's University, Department of Economics.
  8. Arik Levinson, 2002. "Environmental Regulatory Competition: A Status Report and Some New Evident," Working Papers gueconwpa~02-02-07, Georgetown University, Department of Economics.
  9. Cnossen,Sijbren, 2002. "Tax policy in the european union, A review of issues and options," Research Memorandum 023, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  10. Devereux, M.P. & Lockwood, B. & Redoano, M., 2007. "Horizontal and vertical indirect tax competition: Theory and some evidence from the USA," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 451-479, April.
  11. Levinson, Arik, 2003. "Environmental Regulatory Competition: A Status Report and Some New Evidence," National Tax Journal, National Tax Association, vol. 56(1), pages 91-106, March.
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Cited by:
  1. Charles McLure, 2009. "Taxing commercial motor fuel in the European Union: the case for an apportionment-based, destination-principle system," International Tax and Public Finance, Springer, vol. 16(3), pages 395-414, June.
  2. Richard M. Bird, 2004. "Getting it Right: Financing Urban Development in China," International Tax Program Papers 0413, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto, revised Nov 2004.
  3. Jacobs, J.P.A.M. & Ligthart, J.E. & Vrijburg, H., 2007. "Consumption Tax Competition Among Governments: Evidence from the United States," Open Access publications from Tilburg University urn:nbn:nl:ui:12-321895, Tilburg University.
  4. Paizs, László, 2009. "Gázolaj-jövedékiadó verseny az Európai Unióban
    [Fiscal competition on the market for diesel fuel in the European Union]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(3), pages 216-238.
  5. Jon Strand & Michael Keen, 2006. "Indirect Taxeson International Aviation," IMF Working Papers 06/124, International Monetary Fund.
  6. Federico Revelli, 2005. "On Spatial Public Finance Empirics," International Tax and Public Finance, Springer, vol. 12(4), pages 475-492, August.
  7. Dreher, Axel & Krieger, Tim, 2004. "Do gasoline prices converge in a unified Europe with non-harmonized tax rates?," Arbeitspapiere der Nordakademie 2004-04, Nordakademie - Hochschule der Wirtschaft.
  8. repec:pdn:wpaper:5 is not listed on IDEAS
  9. De Borger Bruno & Mayeres Inge, 2004. "Taxation of car ownership, car use and public transport: insights derived from a discrete choice numerical optimisation model," Energy, Transport and Environment Working Papers Series ete0413, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment.
  10. Michael Keen & Ian Parry & Jon Strand, 2013. "Planes, ships and taxes: charging for international aviation and maritime emissions," Economic Policy, CEPR & CES & MSH, vol. 28(76), pages 701-749, October.

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