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

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  • Scott McCracken
  • Frank Stähler

Abstract

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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  • Scott McCracken & Frank Stähler, 2010. "Economic integration and the choice of commodity tax base with endogenous market structures," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(2), pages 91-113, April.
    • Handle: RePEc:kap:itaxpf:v:17:y:2010:i:2:p:91-113
    DOI: 10.1007/s10797-008-9099-3
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    1. Brander, James & Krugman, Paul, 1983. "A 'reciprocal dumping' model of international trade," Journal of International Economics, Elsevier, vol. 15(3-4), pages 313-321, November.
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    9. Nigar Hashimzade & Hassan Khodavaisi & Gareth Myles, 2005. "Tax Principles, Product Differentiation and the Nature of Competition," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(6), pages 695-712, November.
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    15. Nigar Hashimzade & Hassan Khodavaisi & Gareth Myles, 2011. "Country characteristics and preferences over tax principles," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(2), pages 214-232, April.
    16. Jack Mintz & Henry Tulkens, 1984. "Commodity Tax Competition Between Member States of a Federation," Working Paper 558, Economics Department, Queen's University.
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    Citations

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    Cited by:

    1. Haufler, Andreas & Pflüger, Michael, 2003. "Market structure and the taxation of international trade," Discussion Papers in Economics 106, University of Munich, Department of Economics.
    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, August.
    3. Tsaur-Chin Wu & Chih-Ta Yen & Hsiu-Wei Chang, 2023. "Network externalities, trade costs, and the choice of commodity taxation principle," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(5), pages 1203-1224, October.
    4. Kenji Fujiwara, 2016. "Tax Principles and Tariff-Tax Reforms under International Oligopoly," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 18(1), pages 84-98, February.
    5. Chia-Jen Chang & Chih-Ta Yen & Yu-Zhen Lin, 2024. "Commodity taxation principle, heterogeneous goods, and endogenous choice between price and quantity contracts," Journal of Economics, Springer, vol. 143(2), pages 111-140, October.
    6. Kenji Fujiwara & Ryoma Kitamura, 2014. "A trade and domestic tax reform in imperfectly competitive markets," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 23(6), pages 785-795, September.
    7. Onur A. Koska & Frank Stähler & Onur Yeni, 2020. "Trade and commodity taxes as environmental instruments in an open economy," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 48(2), pages 333-353, June.
    8. Kenji Fujiwara, 2015. "Tax Principles and Tariff-Tax Reforms," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 71(3), pages 360-370, September.
    9. repec:kgu:wpaper:99 is not listed on IDEAS
    10. 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.

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    More about this item

    Keywords

    Economic integration; Commodity taxation; Trade; Imperfect competition; Endogenous market structures; F12; H20;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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