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Tax Coordination with Different Preferences for Public Goods: Conflict or Harmony of Interest?

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  • Haufler, Andreas

Abstract

The paper analyzes strategic commodity taxation in a model with trade in a single private good that is simultaneously imported by consumers of a high-tax country and exported by its producers. Conditions for the existence of a Nash equilibrium are given, and an asymmetry is introduced through different preferences for public goods. Two tax coordination measures are discussed - a minimum tax rate and a coordinated increase in the costs of cross-border shopping. It is shown that tax coordination generally benefits the high-tax country while the low-tax country will gain only if the intensity of tax competition is high in the initial equilibrium or if governments are price-sensitive toward the effective marginal costs of public good supply.

Suggested Citation

  • Haufler, Andreas, 1996. "Tax Coordination with Different Preferences for Public Goods: Conflict or Harmony of Interest?," Munich Reprints in Economics 20392, University of Munich, Department of Economics.
    • Handle: RePEc:lmu:muenar:20392
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