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Cross-Border Shopping and the Atkinson-Stiglitz Theorem

  • Sebastian G. Kessing


  • Bernhard Koldert


We introduce cross-border shopping and indirect tax competition into a model of optimal taxation. The Atkinson-Stiglitz result that indirect taxation cannot improve the effciency of information-constrained tax-transfer policies, and that indirect taxes should not be differentiated across goods, is shown to hold in this case. This result is derived for symmetric as well as for asymmetric countries. However, if the tax system must contain elements of indirect taxation, differentiated indirect tax rates arise in the equilibrium and restricting differentiated indirect taxation can be welfare-increasing.

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Paper provided by Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht in its series Volkswirtschaftliche Diskussionsbeiträge with number 158-12.

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Length: 19 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:sie:siegen:158-12
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  1. Devereux, Michael P. & Lockwood, Ben & Redoano, Michela, 2004. "Horizontal and Vertical Indirect Tax Competition: Theory and Some Evidence From the USA," CEPR Discussion Papers 4470, C.E.P.R. Discussion Papers.
  2. Ben Lockwood & Giuseppe Migali, 2009. "Did The Single Market Cause Competition in Excise Taxes? Evidence From EU Countries," Economic Journal, Royal Economic Society, vol. 119(536), pages 406-429, 03.
  3. CREMER, Helmuth & PESTIEAU, Pierre & ROCHET, Jean-Charles, 1999. "Direct versus indirect taxation: the design of the tax structure revisited," CORE Discussion Papers 1999010, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Kanbur, Ravi & Keen, Michael, 1993. "Jeux Sans Frontieres: Tax Competition and Tax Coordination When Countries Differ in Size," American Economic Review, American Economic Association, vol. 83(4), pages 877-92, September.
  5. Guy Laroque, 2004. "Indirect Taxation is Superfluous under Separability and Taste Homogeneity : A Simple Proof," Working Papers 2004-23, Centre de Recherche en Economie et Statistique.
  6. Vrijburg, H. & Jacobs, J.P.A.M. & Ligthart, J.E., 2007. "Consumption tax competition among governments: Evidence from the United States," Research Report 07008, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  7. Stiglitz, Joseph E., 1982. "Self-selection and Pareto efficient taxation," Journal of Public Economics, Elsevier, vol. 17(2), pages 213-240, March.
  8. Emmanuel Saez, 2002. "Direct or Indirect Tax Instruments for Redistribution: Short-run versus Long-run," NBER Working Papers 8833, National Bureau of Economic Research, Inc.
  9. Nielsen, Soren Bo, 2002. "Cross-border shopping from small to large countries," Economics Letters, Elsevier, vol. 77(3), pages 309-313, November.
  10. Mintz, Jack & Tulkens, Henry, 1986. "Commodity tax competition between member states of a federation: equilibrium and efficiency," Journal of Public Economics, Elsevier, vol. 29(2), pages 133-172, March.
  11. Andreas Haufler, 1996. "Tax coordination with different preferences for public goods: Conflict or harmony of interest?," International Tax and Public Finance, Springer, vol. 3(1), pages 5-28, January.
  12. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
  13. Friberg, Richard & Asplund, Marcus & Wilander, Fredrik, 2005. "Demand and Distance: Evidence on Cross-Border Shopping," SSE/EFI Working Paper Series in Economics and Finance 587, Stockholm School of Economics.
  14. Louis Kaplow, 2004. "On the Undesirability of Commodity Taxation Even When Income Taxation is Not Optimal," NBER Working Papers 10407, National Bureau of Economic Research, Inc.
  15. Søren Bo Nielsen, . "A Simple Model of Commodity Taxation and Cross-Border Shopping," EPRU Working Paper Series 98-18, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  16. Simula, Laurent & Trannoy, Alain, 2010. "Optimal income tax under the threat of migration by top-income earners," Journal of Public Economics, Elsevier, vol. 94(1-2), pages 163-173, February.
  17. Vilen Lipatov & Alfons Weichenrieder, 2012. "Optimal income taxation with tax competition," Working Papers 1207, Oxford University Centre for Business Taxation.
  18. Huber, Bernd, 1999. "Tax competition and tax coordination in an optimum income tax model," Journal of Public Economics, Elsevier, vol. 71(3), pages 441-458, March.
  19. Huber, Bernd, 1999. "Tax competition and tax coordination in an optimum income tax model," Munich Reprints in Economics 19402, University of Munich, Department of Economics.
  20. Naito, Hisahiro, 1999. "Re-examination of uniform commodity taxes under a non-linear income tax system and its implication for production efficiency," Journal of Public Economics, Elsevier, vol. 71(2), pages 165-188, February.
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