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Commodity Tax Competition Between Member States of a Federation

Author

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  • Jack Mintz
  • Henry Tulkens

Abstract

This paper characterizes the outcome of tax competition between autonomous fiscal authorities. It treats the case of a two-region economy, where an origin-based commodity tax is levied by each region on a private good to finance a local public good. A second private good is untaxed. We describe regional market equilibria where consumers of each region allocate their purchases according to relative prices, taxes and transportation costs. Optimal tax rates and levels of public good are derived. Fiscal competition arises from the ability of one region to choose its tax rate which can alter the tax base of the other. A non-cooperative fiscal equilibrium (NCFE) is computed and compared to the Pareto optimum. In general, fiscal choices that are Pareto improving in the NCFE never reduce taxes in both regions.

Suggested Citation

  • Jack Mintz & Henry Tulkens, 1984. "Commodity Tax Competition Between Member States of a Federation," Working Papers 558, Queen's University, Department of Economics.
  • Handle: RePEc:qed:wpaper:558
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    Citations

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    Cited by:

    1. Marceau, Nicolas & Mongrain, Steeve, 2011. "Competition in law enforcement and capital allocation," Journal of Urban Economics, Elsevier, vol. 69(1), pages 136-147, January.
    2. Sebastian Hauptmeier & Ferdinand Mittermaier & Johannes Rincke, 2008. "Fiscal Competition over Taxes and Public Inputs: Theory and Evidence," CESifo Working Paper Series 2499, CESifo Group Munich.
    3. Brueckner, Jan K. & Saavedra, Luz A., 2001. "Do Local Governments Engage in Strategic Property-Tax Competition?," National Tax Journal, National Tax Association;National Tax Journal, vol. 54(2), pages 203-230, June.
    4. Leslie Papke, 2000. "One-Way Treaty with the World: The U.S. Withholding Tax and the Netherlands Antilles," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 7(3), pages 295-313, May.
    5. Pieretti, Patrice & Zanaj, Skerdilajda, 2011. "On tax competition, public goods provision and jurisdictions' size," Journal of International Economics, Elsevier, vol. 84(1), pages 124-130, May.
    6. Jack M. Mintz & Stephen R. Richardson, 2001. "Taxation of Financial Intermediation Activities in Hong Kong," Working Papers 092001, Hong Kong Institute for Monetary Research.
    7. Leslie E. Papke, 1989. "International Differences in Capital Taxation and Corporate Borrowing Behavior: Evidence from the U.S. Withholding Tax," NBER Working Papers 3129, National Bureau of Economic Research, Inc.
    8. repec:kap:iaecre:v:16:y:2010:i:2:p:135-148 is not listed on IDEAS
    9. Philippe Thalmann & Lawrence Goulder & François Delorme, 1996. "Assessing the international spillover effects of capital income taxation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 3(4), pages 449-478, October.
    10. Scott McCracken & Frank Stähler, 2010. "Economic integration and the choice of commodity tax base with endogenous market structures," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(2), pages 91-113, April.
    11. Luz Amparo Saavedra, 2000. "Do Local Governments Engage in Strategic Property- Tax competition?," Borradores de Economia 139, Banco de la Republica de Colombia.
    12. Kazuko Miyamoto, 2009. "A New Approach to Estimating Tax Interactions in Fiscal Federalism," Global COE Hi-Stat Discussion Paper Series gd08-053, Institute of Economic Research, Hitotsubashi University.

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