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Cross-border shopping and tax structure

Author

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  • Vidar Christiansen

    (Department of Economics, University of Oslo)

Abstract

A simple benchmark case is established to derive the optimum commodity tax on an externality-generating good that may be purchased abroad directly by domestic consumers. As the tax should under-cut the Pigovian level, this simple case supports the intuition that taxes should be moderated when commodities are cross-border traded. The analysis is extended in two directions. i) It is demonstrated that a fiscal tax, levied on a cross-border traded good, has more complex effects, weakening, or conceivably eliminating, the case for lowering the tax in response to cross-border shopping. Even if a tax cut alleviates distortions in favour of cross-border shopping, it would also induce a further distortion of consumption in the border region. ii) It is shown that when considering the taxation of more than one commodity purchased abroad, we should not neglect joint purchases, as done in previous research. To contain cross-border shopping it may be the more efficient reform to lower the tax on a commodity that is purchased only partially abroad.

Suggested Citation

  • Vidar Christiansen, "undated". "Cross-border shopping and tax structure," EPRU Working Paper Series 03-04, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:epruwp:03-04
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    File URL: http://web.econ.ku.dk/epru/files/wp/wp-03-04.pdf
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    References listed on IDEAS

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    1. Morten Hvidt & Søren Bo Nielsen, 2001. "Non‐cooperative vs. Minimum‐Rate Commodity Taxation," German Economic Review, Verein für Socialpolitik, vol. 2(4), pages 315-326, November.
    2. Kanbur, Ravi & Keen, Michael, 1993. "Jeux Sans Frontieres: Tax Competition and Tax Coordination When Countries Differ in Size," American Economic Review, American Economic Association, vol. 83(4), pages 877-892, September.
    3. Mr. Michael Keen, 2002. "Some International Issues in Commodity Taxation," IMF Working Papers 2002/124, International Monetary Fund.
    4. Christiansen, Vidar, 1994. " Cross-Border Shopping and the Optimum Commodity Tax in a Competitive and a Monopoly Market," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(3), pages 329-341.
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    Cited by:

    1. Aronsson, Thomas & Sjögren, Tomas & Witterblad, Mikael, 2008. "Optimal Taxation and Asymmetric Information in an Economy with Second-Hand Trade," Umeå Economic Studies 732, Umeå University, Department of Economics.
    2. Aronsson, Thomas & Sjögren, Tomas, 2005. "Externalities, Border Trade and Illegal Production: An Optimal Tax Approach to Alcohol Policy," Umeå Economic Studies 654, Umeå University, Department of Economics.
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    4. Thomas Aronsson & Tomas Sjögren, 2010. "An Optimal-Tax Approach to Alcohol Policy," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 66(2), pages 153-169, June.
    5. Andrés Leal & Julio López-Laborda & Fernando Rodrigo, 2010. "Cross-Border Shopping: A Survey," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 16(2), pages 135-148, May.
    6. Katarina Nordblom, 2011. "The complex attitudes to alcohol taxation," Applied Economics, Taylor & Francis Journals, vol. 43(24), pages 3355-3364.
    7. Leal, Andrés & López-Laborda, Julio & Rodrigo, Fernando, 2009. "Prices, taxes and automotive fuel cross-border shopping," Energy Economics, Elsevier, vol. 31(2), pages 225-234.
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    9. Kaisa Kotakorpi, 2009. "Paternalism and Tax Competition," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(1), pages 125-149, March.

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