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Commodity tax competition and industry location under the destination and the origin principle

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  • Behrens, Kristian
  • Hamilton, Jonathan H.
  • Ottaviano, Gianmarco I.P.
  • Thisse, Jacques-François

Abstract

We extend the model by Behrens et al. [Behrens, K., Hamilton, J.H., Ottaviano, G.I.P., Thisse, J.-F., 2007a. Commodity tax harmonization and the location of industry. Journal of International Economics 72, 271-291.] to the case of non-cooperative commodity taxation and investigate the impacts of tax harmonization and changes in tax principle on equilibrium tax rates, industry location, and welfare. Since our setup features internationally mobile firms, trade frictions, and asymmetric country sizes, it offers a convenient framework within which to investigate how differences in market size and deepening international integration affect equilibrium outcomes under competing tax principles. The origin principle, when compared to the destination principle, is shown to exacerbate tax competition and to erode tax revenues, yet gives rise to a more equal spatial distribution of economic activity. This suggests that federations which care about spatial inequality, like the European Union, face a non-trivial choice for their tax principle that goes beyond the standard considerations of tax revenue distribution.

Suggested Citation

  • Behrens, Kristian & Hamilton, Jonathan H. & Ottaviano, Gianmarco I.P. & Thisse, Jacques-François, 2009. "Commodity tax competition and industry location under the destination and the origin principle," Regional Science and Urban Economics, Elsevier, vol. 39(4), pages 422-433, July.
  • Handle: RePEc:eee:regeco:v:39:y:2009:i:4:p:422-433
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    Citations

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    Cited by:

    1. Lenka Janíčková, 2012. "Tax Harmonization - the Possible Way out of the Crisis?," Český finanční a účetní časopis, University of Economics, Prague, vol. 2012(1), pages 64-81.
    2. Pasquale Commendatore & Ingrid Kubin, 2016. "Source versus residence: A comparison from a new economic geography perspective," Papers in Regional Science, Wiley Blackwell, vol. 95(2), pages 201-222, June.
    3. Fabio Antoniou & Panos Hatzipanayotou & Michael S. Michael & Nikos Tsakiris, 2016. "On the Efficiency of Destination and Origin Commodity Taxation in the Presence of Consumption Generated Cross-Border Pollution," CESifo Working Paper Series 6221, CESifo Group Munich.
    4. Behrens, Kristian & Hamilton, Jonathan H. & Ottaviano, Gianmarco I.P. & Thisse, Jacques-François, 2009. "Commodity tax competition and industry location under the destination and the origin principle," Regional Science and Urban Economics, Elsevier, vol. 39(4), pages 422-433, July.
    5. Fabio Antoniou & Panos Hatzipanayotou & Nikos Tsakiris, 2015. "Destination vs. Origin-based Commodity Taxation in Large Open Economies with Unemployment," CESifo Working Paper Series 5585, CESifo Group Munich.
    6. Scott McCracken, 2015. "The choice of commodity tax base in the presence of horizontal foreign direct investment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(5), pages 811-833, October.

    More about this item

    Keywords

    Commodity tax competition Origin principle Destination principle Tax harmonization Industry location;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • 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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