On commodity tax harmonization and public goods provision

Christos Kotsogiannis and Miguel‐Angel Lopez‐Garcia
Authors registered in the RePEc Author Service: Miguel-Angel Lopez-Garcia

Journal of Public Economic Theory, 2021, vol. 23, issue 6, 1220-1227

Abstract: This paper argues that Pareto improvements based on harmonizing tax reforms expressed in terms of the divergence between actual and optimal tax structures and over/under provision of public goods require the use of ‘pseudo‐optimal’ taxes instead of optimal ones. ‘Pseudo‐optimal’ taxes are defined as those obtained using the optimal tax formulas but evaluated at any arbitrary initial tax structure. Within this context the paper reconfirms existing results showing that tax harmonization emerges as a strong policy instrument in achieving a potential Pareto‐improvement.

Date: 2021
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