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Commodity Tax Competition with Constrained Taxes

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  • PASCAL BELAN
  • STÉPHANE GAUTHIER

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.

Suggested Citation

  • Pascal Belan & Stéphane Gauthier, 2009. "Commodity Tax Competition with Constrained Taxes," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 11(4), pages 653-665, August.
  • Handle: RePEc:bla:jpbect:v:11:y:2009:i:4:p:653-665
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    File URL: https://doi.org/10.1111/j.1467-9779.2009.01424.x
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    1. Mintz, Jack & Tulkens, Henry, 1986. "Commodity tax competition between member states of a federation: equilibrium and efficiency," Journal of Public Economics, Elsevier, vol. 29(2), pages 133-172, March.
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    8. Haufler, Andreas, 1998. "Asymmetric commodity tax competition -- comment on de Crombrugghe and Tulkens," Journal of Public Economics, Elsevier, vol. 67(1), pages 135-144, January.
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    13. Keen, Michael, 1987. "Welfare effects of commodity tax harmonisation," Journal of Public Economics, Elsevier, vol. 33(1), pages 107-114, June.
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