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Imperfect competition, indirect tax harmonization and public goods

  • Christos Kotsogiannis


  • Miguel-Angel Lopez-Garcia


This paper shows that the welfare implications of indirect tax harmonization in a two-country imperfectly competitive framework, are, in general, indeterminate in the presence of public goods: Both countries can be made either worse off or better off. This holds under both the destination and origin principles of taxation and is in sharp contrast to existing results where revenue effects are not present. A consequence of this indeterminacy is that a precise evaluation of tax-harmonizing policies under both tax regimes requires an explicit consideration of the underlying preferences for private and public goods as well as the oligopolistic sectors’ relative cost structures. Copyright Springer Science + Business Media, LLC 2007

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Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 14 (2007)
Issue (Month): 2 (April)
Pages: 135-149

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Handle: RePEc:kap:itaxpf:v:14:y:2007:i:2:p:135-149
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  1. Keen, Michael, 1989. "Pareto-improving indirect tax harmonisation," European Economic Review, Elsevier, vol. 33(1), pages 1-12, January.
  2. Andreas Haufler & Michael Pflüger, 2004. "International Commodity Taxation under Monopolistic Competition," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 6(3), pages 445-470, 08.
  3. Andreas Haufler & Guttorm Schjelderup & Frank Stähler, 2000. "Commodity Taxation and International Trade in Imperfect Markets," CESifo Working Paper Series 376, CESifo Group Munich.
  4. Michael Keen & Sajal Lahiri, 1994. "The comparison between destination and origin principles under imperfect competition," IFS Working Papers W94/08, Institute for Fiscal Studies.
  5. Lahiri, Sajal & Raimondos-Moller, Pascalis, 1998. "Public good provision and the welfare effects of indirect tax harmonisation," Journal of Public Economics, Elsevier, vol. 67(2), pages 253-267, February.
  6. Miguel-Angel Lopez-Garcia, 1996. "The origin principle and the welfare gains from indirect tax harmonization," International Tax and Public Finance, Springer, vol. 3(1), pages 83-93, January.
  7. Michael Keen & Sajal Lahiri & Pascalis Raimondos-Møller, 2001. "Tax Principles and Tax Harmonization under Imperfect Competition: A Cautionary Example," CESifo Working Paper Series 518, CESifo Group Munich.
  8. Lopez-Garcia, Miguel-Angel, 1998. "On welfare and revenue effects of indirect tax harmonization," Economics Letters, Elsevier, vol. 60(2), pages 185-193, August.
  9. Keen, Michael, 1987. "Welfare effects of commodity tax harmonisation," Journal of Public Economics, Elsevier, vol. 33(1), pages 107-114, June.
  10. Keen, Michael & Lahiri, Sajal, 1993. "Domestic tax reform and international oligopoly," Journal of Public Economics, Elsevier, vol. 51(1), pages 55-74, May.
  11. Lockwood, B., 2000. "Tax Competition and Tax Co-Ordination Under Destination and Origin Principles: A Synthesis," The Warwick Economics Research Paper Series (TWERPS) 567, University of Warwick, Department of Economics.
  12. Nigar Hashimzade & Hassan Khodavaisi & Gareth Myles, 2005. "Tax Principles, Product Differentiation and the Nature of Competition," International Tax and Public Finance, Springer, vol. 12(6), pages 695-712, November.
  13. Kotsogiannis, Christos & Lopez-Garcia, Miguel-Angel & Myles, Gareth D., 2005. "The origin principle, tax harmonization and public goods," Economics Letters, Elsevier, vol. 87(2), pages 211-219, May.
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