Commodity tax competition and industry location under the destination- and the origin-principle

Kristian Behrens (), Jonathan H. Hamilton (), Gianmarco I.P. Ottaviano () and Jacques Thisse ()

No 2007034, CORE Discussion Papers from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: We develop a model of commodity tax competition with monopolistically competitive internationally mobile firms, transport costs, and asymmetric country sizes. We investigate the impacts of non-cooperative tax setting, as well as of tax harmonization and changes in the tax principle, in both the short and the long run. The origin principle, when compared to the destination principle, is shown to exacerbate tax competition and to erode tax revenues, yet leads to a more equal spatial distribution of economic activity. This suggests that federations which care about spatial inequality, like the European Union, face a non-trivial choice for their tax principle that goes beyond the standard considerations of tax revenue redistribution.

Keywords: commodity tax competition; origin principle; destination principle; tax harmonization; industry location (search for similar items in EconPapers)
JEL-codes: F12 H22 H87 R12 (search for similar items in EconPapers)
Date: 2007-05-01

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Related works:
Working Paper: Commodity tax competition and industry location under the destination - and the origin - principle (2007)
Journal Article: Commodity tax competition and industry location under the destination and the origin principle (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:cor:louvco:2007034

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