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Commodity Tax Competition with Constrained Taxes

Author

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  • Pascal Belan

    (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - IEMN-IAE Nantes - Institut d'Économie et de Management de Nantes - Institut d'Administration des Entreprises - Nantes - UN - Université de Nantes)

  • Stéphane Gauthier

    (ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique, CREST-INSEE - Centre de Recherche en Economie et en Statistique - Institut national de la statistique et des études économiques (INSEE))

Abstract

This paper examines a symmetric Nash equilibria of a two-country model of fiscal competition with a continuum of taxable commodities in each country. The innovation is to impose a uniformity restriction that there can be only two rates of tax on the different commodities, a positive rate and the zero rate. The main results characterize, under two alternative modes of taxation, the equilibrium fiscal rules chosen by countries, i.e., the level of the positive rate and the set of taxed commodities. Under the origin principle, it appears that the equilibrium fiscal base is narrower than the optimal one and the tax rate is too high. In contrast, under the destination principle, the optimal rule is implemented.

Suggested Citation

  • Pascal Belan & Stéphane Gauthier, 2009. "Commodity Tax Competition with Constrained Taxes," Post-Print hal-00731318, HAL.
    • Handle: RePEc:hal:journl:hal-00731318
    DOI: 10.1111/j.1467-9779.2009.01424.x
    Note: View the original document on HAL open archive server: https://hal.science/hal-00731318
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    References listed on IDEAS

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