Destination‐based vs. Origin‐based Commodity Taxation in Large Open Economies with Unemployment

Fabio Antoniou, Panos Hatzipanayotou and Nikos Tsakiris ()

Economica, 2019, vol. 86, issue 341, 67-86

Abstract: We construct a perfectly competitive model of two symmetric countries producing tradable commodities and a public consumption good. Destination‐ or origin‐based taxes are levied on the consumption of the tradable goods. In both countries, a fixed wage leads to involuntary unemployment. We derive the Nash equilibrium consumption taxes under the two taxation principles with endogenous world prices, and compare them to (i) the cooperative rates, and (ii) the rates when world prices are fixed. We demonstrate that with endogenous world prices, the induced terms‐of‐trade effects cancel out under the destination principle, but they prevail under the origin principle of taxation. Nash equilibrium destination‐based taxes are inefficiently low when the exporting sector in each country is non‐labour‐intensive. The Nash equilibrium origin‐based taxes can be either higher or lower than the corresponding cooperative rates.

Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://doi.org/10.1111/ecca.12235

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:econom:v:86:y:2019:i:341:p:67-86

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0013-0427

Access Statistics for this article

Economica is currently edited by Frank Cowell, Tore Ellingsen and Alan Manning

More articles in Economica from London School of Economics and Political Science Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().