Unit tax versus ad valorem tax: A tax competition model with cross-border shopping

Hiroshi Aiura and Hikaru Ogawa

Journal of Public Economics, 2013, vol. 105, issue C, 30-38

Abstract: Within the framework of spatial tax competition with cross-border shopping, we examine the choice of tax method between ad valorem tax and unit (specific) tax. This study shows that governments endogenously choose the ad valorem tax method not because of a classic welfare reason, but because it is a good strategy to compete for mobile consumers. Another key finding is that while governments are committed to the ad valorem tax method, the choice leads to inferior outcome; tax-cutting competition becomes more serious when countries adopt ad valorem tax, and competition in ad valorem tax results in smaller tax revenue than competition in unit tax.

Keywords: Spatial tax competition; Cross-border shopping; Unit (specific) tax; Ad valorem tax (search for similar items in EconPapers)
JEL-codes: H21 H77 L13 R12 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Working Paper: Unit Tax versus Ad Valorem Tax: A Tax Competition Model with Cross-border Shopping (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:105:y:2013:i:c:p:30-38

DOI: 10.1016/j.jpubeco.2013.06.004

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