IDEAS home Printed from https://ideas.repec.org/p/ssb/dispap/573.html
   My bibliography  Save this paper

Revenue functions and Dupuit curves for indirect taxes with cross-border shopping

Author

Listed:

Abstract

The partial revenue from each indirect tax and the total revenue from all indirect taxes on consumer goods are derived as functions of all commodity prices, the tax rates of each commodity, total expenditure and demographic variables using a complete demand system. Within this framework we define Dupuit curves, or Laffer curves, and analyze their existence and maximum points theoretically and empirically. The macro demand system is based on exact aggregation across all households in the economy, and on exact aggregation across commodities within a detailed non-homogeneous utility tree. An empirical application for Norway with 55 commodity groups is presented. For beer, wine, spirits and tobacco, consumers can choose among buying at home, cross-border shopping/ tax-free shopping and smuggling. These substitution possibilities increase substantially the price elasticities for these goods. The partial revenue from wine as function of the tax share on wine has a single maximum value close to the actual tax rate in Norway in 1999, conditioned on all the other exogenous variables. The total revenue as a function of the tax share on wine also has a single maximum value, larger than that for the partial revenue. The same results are valid for spirits. For beer and tobacco there is no revenue maximizing tax share.

Suggested Citation

  • Jørgen Aasness & Odd Erik Nygård, 2009. "Revenue functions and Dupuit curves for indirect taxes with cross-border shopping," Discussion Papers 573, Statistics Norway, Research Department.
  • Handle: RePEc:ssb:dispap:573
    as

    Download full text from publisher

    File URL: http://www.ssb.no/a/publikasjoner/pdf/DP/dp573.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Ian Crawford & Sarah Tanner, 1995. "Bringing it all back home: alcohol taxation and cross-border shopping," Fiscal Studies, Institute for Fiscal Studies, pages 94-114.
    2. Fullerton, Don, 1982. "On the possibility of an inverse relationship between tax rates and government revenues," Journal of Public Economics, Elsevier, pages 3-22.
    3. Michael A. Nelson, 2002. "Using Excise Taxes to Finance State Government: Do Neighboring State Taxation Policy and Cross-Border Markets Matter?," Journal of Regional Science, Wiley Blackwell, vol. 42(4), pages 731-752.
    4. Wildasin, David E., 1988. "Nash equilibria in models of fiscal competition," Journal of Public Economics, Elsevier, pages 229-240.
    5. Lockwood, Ben, 1993. "Commodity tax competition under destination and origin principles," Journal of Public Economics, Elsevier, pages 141-162.
    6. You-Qiang Wang, 1999. "Commodity Taxes under Fiscal Competition: Stackelberg Equilibrium and Optimality," American Economic Review, American Economic Association, pages 974-981.
    7. Mintz, Jack & Tulkens, Henry, 1986. "Commodity tax competition between member states of a federation: equilibrium and efficiency," Journal of Public Economics, Elsevier, pages 133-172.
    8. Mintz, Jack & Tulkens, Henry, 1986. "Commodity tax competition between member states of a federation: equilibrium and efficiency," Journal of Public Economics, Elsevier, pages 133-172.
    9. Kanbur, Ravi & Keen, Michael, 1991. "Tax competition and tax coordination : when countries differ in size," Policy Research Working Paper Series 738, The World Bank.
    10. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, December.
    11. Aasness, Jorgen & Bye, Torstein & Mysen, Hans Terje, 1996. "Welfare effects of emission taxes in Norway," Energy Economics, Elsevier, vol. 18(4), pages 335-346, October.
    12. Devereux, M.P. & Lockwood, B. & Redoano, M., 2007. "Horizontal and vertical indirect tax competition: Theory and some evidence from the USA," Journal of Public Economics, Elsevier, pages 451-479.
    13. Ohsawa, Yoshiaki, 1999. "Cross-border shopping and commodity tax competition among governments," Regional Science and Urban Economics, Elsevier, vol. 29(1), pages 33-51, January.
    14. Rork, Jonathan C., 2003. "Coveting Thy Neighbors' Taxation," National Tax Journal, National Tax Association, vol. 56(4), pages 775-787, December.
    15. Aasness, Jorgen & Biorn, Erik & Skjerpen, Terje, 1993. "Engel Functions, Panel Data, and Latent Variables," Econometrica, Econometric Society, vol. 61(6), pages 1395-1422, November.
    16. Jørgen Aasness & Erik Biørn & Terje Skjerpen, 2003. "Distribution of preferences and measurement errors in a disaggregated expenditure system," Econometrics Journal, Royal Economic Society, vol. 6(2), pages 374-400, December.
    17. Lockwood, Ben, 2001. "Tax competition and tax co-ordination under destination and origin principles: a synthesis," Journal of Public Economics, Elsevier, pages 279-319.
    18. Lockwood, Ben, 2001. "Tax competition and tax co-ordination under destination and origin principles: a synthesis," Journal of Public Economics, Elsevier, pages 279-319.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Revenue functions; indirect taxes; complete demand systems; cross-border shopping; tax-free shopping; smuggling; alcohol; tobacco;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D6 - Microeconomics - - Welfare Economics
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ssb:dispap:573. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (L Maasø). General contact details of provider: http://edirc.repec.org/data/ssbgvno.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.