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Indirect Tax Distortions in a Europe of Shopkeepers

  • John FitzGerald

    (Economic and Social Research Institute (ESRI))

  • Justin Johnston

    (Economic and Social Research Institute (ESRI))

  • James Williams

    (Economic and Social Research Institute (ESRI))

The changed circumstances of the EU after 1992 have a given rise to concern about possible indirect tax competition and related economic distortions. This paper develops a model, incorporating both a production and a retail sector, to examine the effects of different VAT regimes. This model is applied to data on consumer behaviour in the proximity of the Ireland-UK and the Denmark-German borders showing that the potential size of ?border? areas, where distortion may be expected, is relatively small. The paper suggests that there are very limited incentives for governments to act strategically in choosing their indirect tax rates.

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File URL: http://www.esri.ie/UserFiles/publications/20071023120448/WP056.pdf
File Function: First version, 1995
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Paper provided by Economic and Social Research Institute (ESRI) in its series Papers with number WP056.

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Length: 21 pages
Date of creation: Jan 1995
Date of revision:
Handle: RePEc:esr:wpaper:wp056
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  1. FitzGerald, John & Quinn, T. P. & Whelan, Brendan J. & Williams, J. A., 1988. "An Analysis of Cross-Border Shopping," Research Series, Economic and Social Research Institute (ESRI), number GRS137.
  2. Cnossen, Sijbren, 1990. "The case for tax diversity in the European community," European Economic Review, Elsevier, vol. 34(2-3), pages 471-479, May.
  3. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production: I--Production Efficiency," American Economic Review, American Economic Association, vol. 61(1), pages 8-27, March.
  4. Bode, Eckhardt & Krieger-Boden, Christiane & Lammers, Konrad, 1994. "Cross-border activities, taxation and the European single market," Open Access Publications from Kiel Institute for the World Economy 799, Kiel Institute for the World Economy (IfW).
  5. Sinn, Hans-Werner, 1990. "Tax harmonization and tax competition in Europe," Munich Reprints in Economics 19846, University of Munich, Department of Economics.
  6. Berglas, Eitan, 1981. "Harmonization of commodity taxes : Destination, origin and restricted origin principles," Journal of Public Economics, Elsevier, vol. 16(3), pages 377-387, December.
  7. Charles Engel & John H. Rogers, 1994. "How Wide is the Border?," NBER Working Papers 4829, National Bureau of Economic Research, Inc.
  8. Lockwood, Ben & Meza, David & de Myles, Gareth D, 1994. " The Equivalence between Destination and Non-reciprocal Restricted Origin Tax Regimes," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(3), pages 311-28.
  9. Trandel, Gregory A., 1992. "Evading the use tax on cross-border sales : Pricing and welfare effects," Journal of Public Economics, Elsevier, vol. 49(3), pages 313-331, December.
  10. Lockwood, Ben, 1993. "Commodity tax competition under destination and origin principles," Journal of Public Economics, Elsevier, vol. 52(2), pages 141-162, September.
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