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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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    References listed on IDEAS

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    1. J. E. Stiglitz & P. Dasgupta, 1971. "Differential Taxation, Public Goods, and Economic Efficiency," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 151-174.
    2. Roger H. Gordon & Jeffrey K. MacKie-Mason, 1995. "Why Is There Corporate Taxation in a Small Open Economy? The Role of Transfer Pricing and Income Shifting," NBER Chapters,in: The Effects of Taxation on Multinational Corporations, pages 67-94 National Bureau of Economic Research, Inc.
    3. Jacob Frenkel & Assaf Razin & Efraim Sadka, 1991. "International Taxation in an Integrated World," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061430, January.
    4. Bruce, Neil, 1992. "A Note on the Taxation of International Capital Income Flows," The Economic Record, The Economic Society of Australia, vol. 68(202), pages 217-221, September.
    5. Partha Dasgupta & Joseph Stiglitz, 1972. "On Optimal Taxation and Public Production," Review of Economic Studies, Oxford University Press, vol. 39(1), pages 87-103.
    6. Mintz, Jack & Tulkens, Henry, 1996. "Optimality properties of alternative systems of taxation of foreign capital income," Journal of Public Economics, Elsevier, vol. 60(3), pages 373-399, June.
    7. Findlay, Christopher C, 1986. "Optimal Taxation of International Income Flows," The Economic Record, The Economic Society of Australia, vol. 62(177), pages 208-214, June.
    8. Gordon, Roger H, 1986. "Taxation of Investment and Savings in a World Economy," American Economic Review, American Economic Association, vol. 76(5), pages 1086-1102, December.
    9. Huizinga, Harry, 1995. "The optimal taxation of savings and investment in an open economy," Economics Letters, Elsevier, vol. 47(1), pages 59-62, January.
    10. Bruce, N., 1992. "Why Are There Foreign Tax Credits," Working Papers 92-08, University of Washington, Department of Economics.
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    More about this item

    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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