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Tacit Collusion under Destination - and Origin-Based Commodity Taxation

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Abstract

The paper employs a standard model of dynamic price competition to study how international principles of value-added taxation affect the stability of collusive agreements when producers in an international duopoly agree not to export into each other's home market. If costs of production are zero, international tax differentials reduce support for collusive agreements under the destination, but not under the origin principle. When positive costs of production are introduced, however, the ranking of the two tax principles becomes ambiguous. We also show that tax harmonization - taken to imply an increase in the VAT rate of the low-tax country - increases the likelihood of tacit collusion under both the destination principle and the origin principle.

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Paper provided by Center of Finance and Econometrics, University of Konstanz in its series CoFE Discussion Paper with number 99-17.

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Length: 31 pages
Date of creation: 1999
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Handle: RePEc:knz:cofedp:9917

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Cited by:
  1. Haufler, Andreas & Schjelderup, Guttorm, 2004. "Tacit collusion and international commodity taxation," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 577-600, March.
  2. Dirk Schindler & Guttorm Schjelderup, 2009. "Harmonization of Corporate Tax Systems and Its Effect on Collusive Behavior," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 11(4), pages 599-621, 08.

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