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Does Indirect Tax Harmonization Deliver Pareto Improvements in the Presence of Global Public Goods?

  • Ourania Karakosta
  • Christos Kotsogiannis
  • Miguel-Angel Lopez-Garcia

This paper identifies conditions under which, starting from any tax distorting equilibrium, destination- and origin-based indirect tax-harmonizing reforms are potentially Pareto improving in the presence of global public goods. The first condition (unrequited transfers between governments) requires that transfers are designed in such a way that the marginal valuations of the global public goods are equalized, whereas the second (conditional revenue changes) requires that the change in global tax revenues, as a consequence of tax harmonization, is consistent with the direction of inefficiency in global public good provision relative to the (modified) Samuelson rule. Under these conditions, tax harmonization results in redistributing the gains from a reduction in global deadweight loss and any changes in global tax revenues according to the Pareto principle. And this is the case independently of the tax principle in place (destination or origin).

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2668.

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Date of creation: 2009
Date of revision:
Handle: RePEc:ces:ceswps:_2668
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  1. WILDASIN, David E., . "Interjurisdictional capital mobility: Fiscal externality and a corrective subsidy," CORE Discussion Papers RP 831, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  3. Haufler, A. & Schjelderup, G. & Stahler, F., 2000. "Commodity Taxation and International Trade in Imperfect Markets," Papers 17/00, Norwegian School of Economics and Business Administration-.
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  8. Keen, Michael, 1987. "Welfare effects of commodity tax harmonisation," Journal of Public Economics, Elsevier, vol. 33(1), pages 107-114, June.
  9. Khan, M. Ali Khan, 2007. "Perfect Competition," MPRA Paper 2202, University Library of Munich, Germany.
  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. 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.
  12. 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.
  13. Christos Kotsogiannis & Miguel-Angel Lopez-Garcia, 2005. "Imperfect Competition, Indirect Tax Harmonization and Public Goods," Discussion Papers 0501, Exeter University, Department of Economics.
  14. Michael Smart, 1998. "Taxation and Deadweight Loss in a System of Intergovernmental Transfers," Canadian Journal of Economics, Canadian Economics Association, vol. 31(1), pages 189-206, February.
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  16. 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.
  17. Keen, Michael, 1989. "Pareto-improving indirect tax harmonisation," European Economic Review, Elsevier, vol. 33(1), pages 1-12, January.
  18. Delipalla, Sophia, 1997. "Commodity tax harmonisation and public goods," Journal of Public Economics, Elsevier, vol. 63(3), pages 447-466, February.
  19. Wildasin, David E, 1991. "Income Redistribution in a Common Labor Market," American Economic Review, American Economic Association, vol. 81(4), pages 757-74, September.
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