International Tax Coordination: Indirect Taxation

This paper addresses the question of the need for commodity tax harmonization in the context of regional integration. It analyses the distortions arising in the presence of tax rate differentials both from a theoretical and an empirica1 perspective, and with reference to actual experiences of harmonization attempts. Attention is also paid to the relationships with the countries excluded from the integration process and to administrative issues of tax harmonization. The findings of the paper suggest that, in general, efficiency losses due to tax diversity do not appear large enough to make a strong case for international tax uniformity. This conclusion is supported by the fact that international tax harmonization may involve some costs in terms of efficiency, since it is difficult to determine around which system it should take place and, in any case, the “right” system would not necessarily be the same for all countries. However, there may be a rationale for imposing minimum rates for commodity taxes to avoid international conflicts in the distribution of revenues and incentives for strategic behavior.