Did the Single Market Cause Competition in Excise Taxes? Evidence from EU Countries
AbstractThe introduction of the Single Market resulted in a switch from destination to origin-based taxation of cross-border transactions by individuals. The theory of commodity tax competition predicts that this change should give rise to excise tax competition and thus intensify strategic interaction in the setting of excise taxes. In this paper, we provide an empirical test of this prediction using a panel data set of 12 EU countries over the period 1987-2004. We find that for all excise duties that we consider (still and sparkling wine, beer, ethyl alcohol, and cigarettes), strategic interaction between countries significantly increased after 1993, consistently with the theoretical prediction. Indeed, for all these products except for cigarettes, there is no evidence of strategic interaction prior to 1993, so our findings are consistent with the hypothesis that the single market caused tax competition. For beer and ethyl alcohol, there is evidence that the minimum taxes, also introduced in 1993, have intensified strategic interaction.
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Bibliographic InfoPaper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 847.
Length: 29 pages
Date of creation: 2008
Date of revision:
tax competition ; excise taxes ; cross-border shopping;
Other versions of this item:
- Ben Lockwood & Giuseppe Migali, 2009. "Did The Single Market Cause Competition in Excise Taxes? Evidence From EU Countries," Economic Journal, Royal Economic Society, vol. 119(536), pages 406-429, 03.
- H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
- H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
- H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-03-25 (All new papers)
- NEP-EEC-2008-03-25 (European Economics)
- NEP-PBE-2008-03-25 (Public Economics)
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