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Did The Single Market Cause Competition in Excise Taxes? Evidence From EU Countries

  • Ben Lockwood
  • Giuseppe Migali

Tax competition theory predicts that the introduction of the EU Single Market in 1993 should have caused excise tax competition and thus increased strategic interaction in the setting of excise taxes among EU countries. We test this prediction using a panel data set of 12 EU countries over the period 1987-2004. We find that for excise duties on still and sparkling wine, beer and ethyl alcohol, strategic interaction significantly increased after 1993. There is weaker evidence of increased interaction in cigarette taxes, possibly because cigarettes are widely smuggled, giving rise to tax competition even before the Single Market. Copyright � The Author(s). Journal compilation � Royal Economic Society 2009.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0297.2008.02235.x
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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 119 (2009)
Issue (Month): 536 (03)
Pages: 406-429

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Handle: RePEc:ecj:econjl:v:119:y:2009:i:536:p:406-429
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  1. Andreas Haufler, 1996. "Tax coordination with different preferences for public goods: Conflict or harmony of interest?," International Tax and Public Finance, Springer, vol. 3(1), pages 5-28, January.
  2. Egger, Peter & Pfaffermayr, Michael & Winner, Hannes, 2005. "Commodity taxation in a 'linear' world: a spatial panel data approach," Regional Science and Urban Economics, Elsevier, vol. 35(5), pages 527-541, September.
  3. Rork, Jonathan C., 2003. "Coveting Thy Neighbors' Taxation," National Tax Journal, National Tax Association, vol. 56(4), pages 775-87, December.
  4. Case, Anne C. & Rosen, Harvey S. & Hines, James Jr., 1993. "Budget spillovers and fiscal policy interdependence : Evidence from the states," Journal of Public Economics, Elsevier, vol. 52(3), pages 285-307, October.
  5. Devereux, Michael & Lockwood, Ben & Redoano, Michela, 2004. "Horizontal And Vertical Indirect Tax Competition : Theory And Some Evidence From The Usa," The Warwick Economics Research Paper Series (TWERPS) 704, University of Warwick, Department of Economics.
  6. Michael A. Nelson, 2002. "Using Excise Taxes to Finance State Government: Do Neighboring State Taxation Policy and Cross-Border Markets Matter?," Journal of Regional Science, Wiley Blackwell, vol. 42(4), pages 731-752.
  7. Ohsawa, Yoshiaki, 1999. "Cross-border shopping and commodity tax competition among governments," Regional Science and Urban Economics, Elsevier, vol. 29(1), pages 33-51, January.
  8. Kanbur, Ravi & Keen, Michael, 1991. "Tax competition and tax coordination : when countries differ in size," Policy Research Working Paper Series 738, The World Bank.
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