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Commodity Tax Competition Between Member States of a Federation

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Author Info

  • Jack Mintz
  • Henry Tulkens

Abstract

This paper characterizes the outcome of tax competition between autonomous fiscal authorities. It treats the case of a two-region economy, where an origin-based commodity tax is levied by each region on a private good to finance a local public good. A second private good is untaxed. We describe regional market equilibria where consumers of each region allocate their purchases according to relative prices, taxes and transportation costs. Optimal tax rates and levels of public good are derived. Fiscal competition arises from the ability of one region to choose its tax rate which can alter the tax base of the other. A non-cooperative fiscal equilibrium (NCFE) is computed and compared to the Pareto optimum. In general, fiscal choices that are Pareto improving in the NCFE never reduce taxes in both regions.

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Bibliographic Info

Paper provided by Queen's University, Department of Economics in its series Working Papers with number 558.

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Length: 48 pages
Date of creation: 1984
Date of revision:
Handle: RePEc:qed:wpaper:558

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Cited by:
  1. Scott McCracken & Frank Stähler, 2010. "Economic integration and the choice of commodity tax base with endogenous market structures," International Tax and Public Finance, Springer, vol. 17(2), pages 91-113, April.
  2. Andreas Haufler & Guttorm Schjelderup & Frank Stähler, 2000. "Commodity Taxation and International Trade in Imperfect Markets," CESifo Working Paper Series 376, CESifo Group Munich.
  3. Pieretti, Patrice & Zanaj, Skerdilajda, 2011. "On tax competition, public goods provision and jurisdictions' size," Journal of International Economics, Elsevier, vol. 84(1), pages 124-130, May.
  4. Nicolas Marceau & Steeve Mongrain, 2007. "Competition in Law Enforcement and Capital Allocation," Discussion Papers dp07-03, Department of Economics, Simon Fraser University.
  5. Brueckner, Jan K. & Saavedra, Luz A., 2001. "Do Local Governments Engage in Strategic Property-Tax Competition?," National Tax Journal, National Tax Association, vol. 54(n. 2), pages 203-30, June.
  6. Philippe THALMANN & Lawrence H. GOULDER & François DELORME, 1994. "Assessing the International Spillover Effects of Capital Income Taxation," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9411, Université de Lausanne, Faculté des HEC, DEEP.
  7. Jack M. Mintz & Stephen R. Richardson, 2001. "Taxation of Financial Intermediation Activities in Hong Kong," Working Papers 092001, Hong Kong Institute for Monetary Research.
  8. Luz Amparo Saavedra, . "Do Local Governments Engage in Strategic Property- Tax competition?," Borradores de Economia 139, Banco de la Republica de Colombia.
  9. Leslie Papke, 2000. "One-Way Treaty with the World: The U.S. Withholding Tax and the Netherlands Antilles," International Tax and Public Finance, Springer, vol. 7(3), pages 295-313, May.
  10. Kazuko Miyamoto, 2009. "A New Approach to Estimating Tax Interactions in Fiscal Federalism," Global COE Hi-Stat Discussion Paper Series gd08-053, Institute of Economic Research, Hitotsubashi University.
  11. Hauptmeier, Sebastian & Mittermaier, Ferdinand & Rincke, Johannes, 2009. "Fiscal competition over taxes and public inputs - theory and evidence," Working Paper Series 1033, European Central Bank.
  12. Andrés Leal & Julio López-Laborda & Fernando Rodrigo, 2010. "Cross-Border Shopping: A Survey," International Advances in Economic Research, Springer, vol. 16(2), pages 135-148, May.
  13. Leslie E. Papke, 1989. "International Differences in Capital Taxation and Corporate Borrowing Behavior: Evidence from the U.S. Withholding Tax," NBER Working Papers 3129, National Bureau of Economic Research, Inc.

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