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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.

Suggested Citation

  • 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. repec:kap:itaxpf:v:24:y:2017:i:5:d:10.1007_s10797-016-9435-y is not listed on IDEAS
    2. Magnus Hoffmann & Marco Runkel, 2016. "A welfare comparison of ad valorem and unit tax regimes," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(1), pages 140-157, February.
    3. Junichi Haraguchi & Hikaru Ogawa, 2016. "Leadership in Tax Ccompetition with Fiscal Equalization Transfers ," CIRJE F-Series CIRJE-F-1031, CIRJE, Faculty of Economics, University of Tokyo.
    4. Birg, Laura, 2015. "Cross-border or online: Tax competition with mobile consumers under destination and origin principle," Center for European, Governance and Economic Development Research Discussion Papers 265, University of Goettingen, Department of Economics.
    5. Hiroshi Aiura & Hikaru Ogawa, 2016. "Indirect Taxes in the Cross-border Shopping Model: A Monopolistic Competition Approach," CIRJE F-Series CIRJE-F-1014, CIRJE, Faculty of Economics, University of Tokyo.

    More about this item

    Keywords

    Spatial tax competition; Cross-border shopping; Unit (specific) tax; Ad valorem tax;

    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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