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Commodity Tax Harmonisation with Public Goods - an Alternative Perspective

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  • Ben Lockwood

Abstract

This paper investigates whether it is possible to find Pareto-improving commodity tax reforms that harmonise taxes between two countries when governments supply public goods and thus have revenue requirements. It is shown that, with two goods, and starting from Nash equilibrium taxes, any harmonising reform will always make both countries worse off (better off) ifthe imported good is taxed less heavily (more heavily) than the exported good by both countries. An example suggests that harmonisation is unlikely to be Pareto-improving if the revenue requirement is high, and the demand for imports is relatively price elastic. An alternative definition of harmonisation, difference harmonisation, which may yield Pareto-improvements under more general conditions, is proposed.

Suggested Citation

  • Ben Lockwood, "undated". "Commodity Tax Harmonisation with Public Goods - an Alternative Perspective," EPRU Working Paper Series 95-10, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:epruwp:95-10
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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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