Tax Principles and Tax Harmonization under Imperfect Competition: A Cautionary Example
This paper shows that under imperfect competition the welfare effects of indirect tax harmonization may depend crucially on whether taxes are levied by the destination or the origin principle. In a standard model of imperfect competition, while harmonization always makes at least one country better off, and may be Pareto-improving, when taxes are levied under the destination principle (which currently applies in the European Union), harmonization of origin-based taxes (as recently proposed by the European Commission) is certain to be Pareto-worsening when the preferences in the two countries are identical, and is likely to be so even when they differ.
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- Keen, Michael & Lahiri, Sajal, 1998.
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- Sajal Lahiri & Pascalis Raimondos, "undated". "Public Good Provision and the Welfare Effects of Indirect Tax Harmonisation," EPRU Working Paper Series 95-13, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
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- Lopez-Garcia, Miguel-Angel, 1998. "On welfare and revenue effects of indirect tax harmonization," Economics Letters, Elsevier, vol. 60(2), pages 185-193, August.
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- Ben Lockwood & David Meza & Gareth Myles, 1994. "When are origin and destination regimes equivalent?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 1(1), pages 5-24, February.
- Miguel-Angel Lopez-Garcia, 1996. "The origin principle and the welfare gains from indirect tax harmonization," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 3(1), pages 83-93, January. Full references (including those not matched with items on IDEAS)
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