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Did the Single Market Cause Competition in Excise Taxes? Evidence from EU Countries

  • Lockwood, Ben

    (University of Warwick)

  • Migali, Giuseppe

    (Lancaster University)

The introduction of the Single Market resulted in a switch from destination to origin-based taxation of cross-border transactions by individuals. The theory of commodity tax competition predicts that this change should give rise to excise tax competition and thus intensify strategic interaction in the setting of excise taxes. In this paper, we provide an empirical test of this prediction using a panel data set of 12 EU countries over the period 1987-2004. We find that for all excise duties that we consider (still and sparkling wine, beer, ethyl alcohol, and cigarettes), strategic interaction between countries significantly increased after 1993, consistently with the theoretical prediction. Indeed, for all these products except for cigarettes, there is no evidence of strategic interaction prior to 1993, so our findings are consistent with the hypothesis that the single market caused tax competition. For beer and ethyl alcohol, there is evidence that the minimum taxes, also introduced in 1993, have intensified strategic interaction.

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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp_847.pdf
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Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 847.

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Length: 29 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:wrk:warwec:847
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  1. Devereux, Michael & Lockwood, Ben & Redoano, Michela, 2004. "Horizontal And Vertical Indirect Tax Competition : Theory And Some Evidence From The Usa," The Warwick Economics Research Paper Series (TWERPS) 704, University of Warwick, Department of Economics.
  2. Egger, Peter & Pfaffermayr, Michael & Winner, Hannes, 2005. "Commodity taxation in a 'linear' world: a spatial panel data approach," Regional Science and Urban Economics, Elsevier, vol. 35(5), pages 527-541, September.
  3. Kanbur, Ravi & Keen, Michael, 1991. "Tax competition and tax coordination : when countries differ in size," Policy Research Working Paper Series 738, The World Bank.
  4. Rork, Jonathan C., 2003. "Coveting Thy Neighbors' Taxation," National Tax Journal, National Tax Association, vol. 56(4), pages 775-87, December.
  5. Case, Anne C. & Rosen, Harvey S. & Hines, James Jr., 1993. "Budget spillovers and fiscal policy interdependence : Evidence from the states," Journal of Public Economics, Elsevier, vol. 52(3), pages 285-307, October.
  6. Haufler, Andreas, 1996. "Tax Coordination with Different Preferences for Public Goods: Conflict or Harmony of Interest?," Munich Reprints in Economics 20392, University of Munich, Department of Economics.
  7. 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.
  8. 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.
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