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Commodity tax competition and industry location under the destination and the origin principle

  • BEHRENS, Kristian
  • HAMILTON, Jonathan H.
  • OTTAVIANO, Gianmarco I.P.
  • THISSE, Jacques-François

We extend the model by Behrens et al. [Behrens, K., Hamilton, J.H., Ottaviano, G.I.P., Thisse, J.-F., 2007a. Commodity tax harmonization and the location of industry. Journal of International Economics 72, 271-291.] to the case of non-cooperative commodity taxation and investigate the impacts of tax harmonization and changes in tax principle on equilibrium tax rates, industry location, and welfare. Since our setup features internationally mobile firms, trade frictions, and asymmetric country sizes, it offers a convenient framework within which to investigate how differences in market size and deepening international integration affect equilibrium outcomes under competing tax principles. The origin principle, when compared to the destination principle, is shown to exacerbate tax competition and to erode tax revenues, yet gives rise to a more equal spatial distribution of economic activity. This suggests that federations which care about spatial inequality, like the European Union, face a non-trivial choice for their tax principle that goes beyond the standard considerations of tax revenue distribution.

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File URL: http://dx.doi.org/10.1016/j.regsciurbeco.2009.01.008
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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number -2101.

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Handle: RePEc:cor:louvrp:-2101
Note: In : Regional Science and Urban Economics, 39, 422-433, 2009
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  1. Haufler, Andreas & Schjelderup, Guttorm & Stähler, Frank, 2005. "Barriers to trade and imperfect competition: The choice of commodity tax base," Munich Reprints in Economics 20414, University of Munich, Department of Economics.
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  8. Andreas Haufler & Michael Pflüger, 2001. "International Commodity Taxation Under Monopolistic Competition," CESifo Working Paper Series 529, CESifo Group Munich.
  9. André Sapir & Richard Baldwin & Daniel Cohen & Anthony Venables, 1999. "Market integration, regionalism and the global economy," ULB Institutional Repository 2013/8074, ULB -- Universite Libre de Bruxelles.
  10. BEHRENS, Kristian & HAMILTON, Jonathan H. & OTTAVIANO, Gianmarco I.P. & THISSE, Jacques-François, 2007. "Commodity tax competition and industry location under the destination- and the origin-principle," CORE Discussion Papers 2007034, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  11. Michael Keen and Sajal Lahiri, . "The Comparison Between Destination and Origin Principles Under Imperfect Competition," Economics Discussion Papers 424, University of Essex, Department of Economics.
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  17. BEHRENS, Kristian & HAMILTON, Jonathan H. & OTTAVIANO, Gianmarco I.P. & THISSE, Jacques-François, . "Commodity tax harmonization and the location of industry," CORE Discussion Papers RP -1945, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  18. Lockwood, Ben, 1992. "Commodity Tax Competition Under Destination and Origin Principles," CEPR Discussion Papers 733, C.E.P.R. Discussion Papers.
  19. 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.
  20. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, June.
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