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Economic integration and the choice of commodity tax base with endogenous market structures

  • Scott McCracken

    ()

  • Frank Stähler

    ()

This paper analyzes the choice of commodity tax base when countries set their taxes non-cooperatively in a two-country symmetric reciprocal dumping model of intra-industry trade with free entry and trade costs. We show that the consumption base (destination principle) dominates the production base (origin principle) when trade costs are high or demand is linear. For lower levels of trade costs and nonlinear demand, the welfare ranking of the two tax bases is ambiguous. Hence, there is no clear preference for a tax principle with an ongoing movement towards closer economic integration.

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File URL: http://hdl.handle.net/10.1007/s10797-008-9099-3
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Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 17 (2010)
Issue (Month): 2 (April)
Pages: 91-113

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Handle: RePEc:kap:itaxpf:v:17:y:2010:i:2:p:91-113
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  1. Lockwood, Ben, 1993. "Commodity tax competition under destination and origin principles," Journal of Public Economics, Elsevier, vol. 52(2), pages 141-162, September.
  2. Michael Keen and Sajal Lahiri, . "The Comparison Between Destination and Origin Principles Under Imperfect Competition," Economics Discussion Papers 424, University of Essex, Department of Economics.
  3. 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.
  4. Nigar Hashimzade & Hassan Khodavaisi & Gareth Myles, 2011. "Country characteristics and preferences over tax principles," International Tax and Public Finance, Springer, vol. 18(2), pages 214-232, April.
  5. Haufler, Andreas & Schjelderup, Guttorm & Stähler, Frank, 2005. "Barriers to trade and imperfect competition: The choice of commodity tax base," Munich Reprints in Economics 20414, University of Munich, Department of Economics.
  6. Venables, Anthony J., 1985. "Trade and trade policy with imperfect competition: The case of identical products and free entry," Journal of International Economics, Elsevier, vol. 19(1-2), pages 1-19, August.
  7. James Brander & Paul Krugman, 1980. "A "Reciprocal Dumping" Model of International Trade," Working Papers 405, Queen's University, Department of Economics.
  8. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
  9. 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.
  10. Kanbur, Ravi & Keen, Michael, 1993. "Jeux Sans Frontieres: Tax Competition and Tax Coordination When Countries Differ in Size," American Economic Review, American Economic Association, vol. 83(4), pages 877-92, September.
  11. Delipalla, Sofia & Keen, Michael, 1992. "The comparison between ad valorem and specific taxation under imperfect competition," Journal of Public Economics, Elsevier, vol. 49(3), pages 351-367, December.
  12. Suzumura, Kotaro & Kiyono, Kazuharu, 1987. "Entry Barriers and Economic Welfare," Review of Economic Studies, Wiley Blackwell, vol. 54(1), pages 157-67, January.
  13. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
  14. Jack Mintz & Henry Tulkens, 1984. "Commodity Tax Competition Between Member States of a Federation," Working Papers 558, Queen's University, Department of Economics.
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