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Indirect Taxes in the Cross-border Shopping Model: A Monopolistic Competition Approach

Author

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  • Hiroshi Aiura

    (Faculty of Economics, Oita University)

  • Hikaru Ogawa

    (Faculty of Economics, The University of Tokyo)

Abstract

Within the framework of cross-border shopping with monopolistic competition, we examine the relative merits of an ad valorem (ADV) tax and a unit (speci c) tax as indirect tax methods. Our study focuses on how the opening of borders and the entry of rms affect the equilibrium under each tax method. Our ndings reveal that the ADV tax method is superior to the unit tax method in terms of tax revenue and welfare. In addition, while the entry of rms and opening of borders reduce the dominance of tax revenue under the ADV tax method, they increase the method's merits from a welfare perspective.

Suggested Citation

  • Hiroshi Aiura & Hikaru Ogawa, 2016. "Indirect Taxes in the Cross-border Shopping Model: A Monopolistic Competition Approach," CIRJE F-Series CIRJE-F-1014, CIRJE, Faculty of Economics, University of Tokyo.
    • Handle: RePEc:tky:fseres:2016cf1014
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    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

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