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Commodity Tax Competition with Constrained Taxes

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Author Info

  • Pascal Belan

    () (LEN - Laboratoire d'Economie de Nantes - Université de Nantes)

  • Stéphane Gauthier

    (ENSAE - École Nationale de la Statistique et de l'Administration Économique - ENSAE ParisTech, CREST-INSEE - Centre de Recherche en Economie et en Statistique - Institut national de la statistique et des études économiques (INSEE))

Abstract

This paper examines a symmetric Nash equilibria of a two-country model of fiscal competition with a continuum of taxable commodities in each country. The innovation is to impose a uniformity restriction that there can be only two rates of tax on the different commodities, a positive rate and the zero rate. The main results characterize, under two alternative modes of taxation, the equilibrium fiscal rules chosen by countries, i.e., the level of the positive rate and the set of taxed commodities. Under the origin principle, it appears that the equilibrium fiscal base is narrower than the optimal one and the tax rate is too high. In contrast, under the destination principle, the optimal rule is implemented.

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Bibliographic Info

Paper provided by HAL in its series Post-Print with number hal-00731318.

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Date of creation: Aug 2009
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Publication status: Published, Journal of Public Economic Theory, 2009, 11, 4, 653-665
Handle: RePEc:hal:journl:hal-00731318

Note: View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00731318
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Related research

Keywords: fiscal competition; origin and destination principles; number of available tax rates;

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  1. Lopez-Garcia, Miguel-Angel, 1998. "On welfare and revenue effects of indirect tax harmonization," Economics Letters, Elsevier, vol. 60(2), pages 185-193, August.
  2. Berglas, Eitan, 1981. "Harmonization of commodity taxes : Destination, origin and restricted origin principles," Journal of Public Economics, Elsevier, vol. 16(3), pages 377-387, December.
  3. Michael Keen & Sajal Lahiri, 1994. "The comparison between destination and origin principles under imperfect competition," IFS Working Papers W94/08, Institute for Fiscal Studies.
  4. Miguel-Angel Lopez-Garcia, 1996. "The origin principle and the welfare gains from indirect tax harmonization," International Tax and Public Finance, Springer, vol. 3(1), pages 83-93, January.
  5. Lockwood, Ben, 1993. "Commodity tax competition under destination and origin principles," Journal of Public Economics, Elsevier, vol. 52(2), pages 141-162, September.
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