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Scale Economies in Cross-Border Shopping and Commodity Taxation

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  • Kimberley Scharf

Abstract

A simple inventory theoretic model of cross-border shopping with transaction and storage costs is developed. Consumers incur fixed transaction and transportation costs to access the foreign market in which a perfect substitute of the domestic good is available. We show that the size of the optimal tax is inversely related to the size of domestic transactions. This result provides a simple example of a more general principle, that is, when there are increasing returns to scale in tax avoidance with respect to the quantities involved, then smaller transactions should be taxed more heavily than larger transactions. Copyright Kluwer Academic Publishers 1999

Suggested Citation

  • Kimberley Scharf, 1999. "Scale Economies in Cross-Border Shopping and Commodity Taxation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 6(1), pages 89-99, February.
  • Handle: RePEc:kap:itaxpf:v:6:y:1999:i:1:p:89-99
    DOI: 10.1023/A:1008652004940
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    References listed on IDEAS

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    1. Harry Huizinga & Søren Bo Nielsen, "undated". "The Taxation of Interest in Europe: A Minimum Withholding Tax?," EPRU Working Paper Series 97-13, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    2. Kanbur, Ravi & Keen, Michael, 1991. "Tax competition and tax coordination : when countries differ in size," Policy Research Working Paper Series 738, The World Bank.
    3. Andreas Haufler, 1996. "Tax coordination with different preferences for public goods: Conflict or harmony of interest?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 3(1), pages 5-28, January.
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    Citations

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    Cited by:

    1. Esteller-Moré, Alejandro & Rizzo, Leonzio, 2011. "(Uncontrolled) Aggregate Shocks or Vertical Tax Interdependence? Evidence From Gasoline and Cigarettes," National Tax Journal, National Tax Association, vol. 64(2), pages 353-379, June.
    2. 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.
    3. Bas Spierings & Martin Van Der Velde, 2008. "Shopping, Borders And Unfamiliarity: Consumer Mobility In Europe," Tijdschrift voor Economische en Sociale Geografie, Royal Dutch Geographical Society KNAG, vol. 99(4), pages 497-505, September.
    4. Leonzio Rizzo, 2008. "Local government responsiveness to federal transfers: theory and evidence," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 15(3), pages 316-337, June.
    5. Leal, Andrés & López-Laborda, Julio & Rodrigo, Fernando, 2009. "Prices, taxes and automotive fuel cross-border shopping," Energy Economics, Elsevier, vol. 31(2), pages 225-234.
    6. Leonzio Rizzo, 2006. "Le inefficienze della competizione fiscale: una rassegna dei principali modelli teorici," Economia politica, Società editrice il Mulino, issue 1, pages 89-120.
    7. repec:kap:iaecre:v:16:y:2010:i:2:p:135-148 is not listed on IDEAS
    8. 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.
    9. Andrés Leal & Julio López-Laborda & Fernando Rodrigo, 2010. "Cross-Border Shopping: A Survey," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 16(2), pages 135-148, May.
    10. Rizzo, Leonzio, 2005. "Interaction between Vertical and Horizontal tax Competition: Theory and Evidence," MPRA Paper 5334, University Library of Munich, Germany.

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