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On the Principles of Commodity Taxation under Interregional Externalities

Author

Listed:
  • Fabio Antoniou
  • Panos Hatzipanayotou
  • Michael S. Michael
  • Nikos Tsakiris

Abstract

We examine the efficiency of decentralized commodity taxation where consumption tax revenue finances public sector activities related to interregional externalities. We consider two cases; tax revenue finances (i) public pollution abatement in the presence of consumption generated transboundary pollution, and (ii) the provision of an interregional public consumption good, in the absence of pollution. The key result of our study is that in either case, non-cooperative equilibrium origin-based consumption taxes are efficient, while destination-based taxes are not. When consumption tax revenue is lump-sum distributed, neither type of consumption taxes is efficient.

Suggested Citation

  • Fabio Antoniou & Panos Hatzipanayotou & Michael S. Michael & Nikos Tsakiris, 2019. "On the Principles of Commodity Taxation under Interregional Externalities," University of Cyprus Working Papers in Economics 03-2019, University of Cyprus Department of Economics.
  • Handle: RePEc:ucy:cypeua:03-2019
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    File URL: http://papers.econ.ucy.ac.cy/RePEc/papers/03-19.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Commodity taxation; Origin principle; Destination principle; Interregional externalities; Efficiency; Public goods;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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