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Unit tax versus ad valorem tax: A tax competition model with cross-border shopping

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  • Aiura, Hiroshi
  • Ogawa, Hikaru

Abstract

Within the framework of spatial tax competition with cross-border shopping, we examine the choice of tax method between ad valorem tax and unit (specific) tax. This study shows that governments endogenously choose the ad valorem tax method not because of a classic welfare reason, but because it is a good strategy to compete for mobile consumers. Another key finding is that while governments are committed to the ad valorem tax method, the choice leads to inferior outcome; tax-cutting competition becomes more serious when countries adopt ad valorem tax, and competition in ad valorem tax results in smaller tax revenue than competition in unit tax.

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  • Aiura, Hiroshi & Ogawa, Hikaru, 2013. "Unit tax versus ad valorem tax: A tax competition model with cross-border shopping," Journal of Public Economics, Elsevier, vol. 105(C), pages 30-38.
  • Handle: RePEc:eee:pubeco:v:105:y:2013:i:c:p:30-38
    DOI: 10.1016/j.jpubeco.2013.06.004
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    Cited by:

    1. Kojun Hamada, 2022. "Commodity tax competition and cross-border shopping in a tripoint model," Asia-Pacific Journal of Regional Science, Springer, vol. 6(2), pages 837-862, June.
    2. Birg, Laura, 2018. "Cross-border or Online - Tax Competition with Mobile Consumers under Destination and Origin Principle," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181645, Verein für Socialpolitik / German Economic Association.
    3. Hiroshi Aiura & Hikaru Ogawa, 2019. "Indirect taxes in a cross-border shopping model: a monopolistic competition approach," Journal of Economics, Springer, vol. 128(2), pages 147-175, October.
    4. Mutsumi Matsumoto & Hikaru Ogawa, 2022. "Tax Competition and Efficient Fiscal Transfers under Capital and Labor Income Taxes," CIRJE F-Series CIRJE-F-1196, CIRJE, Faculty of Economics, University of Tokyo.
    5. Thomas Eichner & Rüdiger Pethig, 2018. "Self-enforcing capital tax coordination," Journal of Business Economics, Springer, vol. 88(7), pages 915-940, September.
    6. Willem Sas, 2017. "Can fiscal equalisation mitigate tax competition? Ad valorem and residence-based taxation in a federation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(5), pages 817-853, September.
    7. Haraguchi Junichi & Ogawa Hikaru, 2018. "Leadership in Tax Competition with Fiscal Equalization Transfers," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 18(3), pages 1-15, July.
    8. David R. Agrawal & David E. Wildasin, 2019. "Sales Taxation, Spatial Agglomeration, and the Internet," CESifo Working Paper Series 7742, CESifo.

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    More about this item

    Keywords

    Spatial tax competition; Cross-border shopping; Unit (specific) tax; Ad valorem tax;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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