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International commodity taxation under monopolistic competition

  • Haufler, Andreas
  • Pflüger, Michael

We analyze non-cooperative commodity taxation in a two-country trade model characterized by monopolistic competition and international firm and capital mobility. In this setting, taxes in one country affect foreign welfare through the relocation of mobile firms and through changes in the rents accruing to capital owners. With consumption-based taxation, these fiscal externalities exactly offset each other and the non-cooperative tax equilibrium is Pareto efficient. With production-based taxation, however, there are additional externalities on the foreign tax base and the foreign price level that lead non-cooperative tax rates to exceed their Pareto efficient levels.

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Paper provided by University of Munich, Department of Economics in its series Munich Reprints in Economics with number 20425.

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Date of creation: 2004
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Publication status: Published in Journal of Public Economic Theory 3 6(2004): pp. 445-470
Handle: RePEc:lmu:muenar:20425
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