The choice of commodity tax base in the presence of horizontal foreign direct investment

Scott McCracken

International Tax and Public Finance, 2015, vol. 22, issue 5, 833 pages

Abstract: We analyse the choice of commodity tax base, when countries set their taxes non-cooperatively in a reciprocal dumping model of homogeneous goods trade with horizontal foreign direct investment (FDI). We show that the consumption base (destination principle) weakly welfare-dominates the production base (origin principle) for a large range of plant fixed costs. When integration is complete, the destination principle dominates the origin principle for all levels of plant fixed costs below which FDI occurs under the origin principle. This contrasts with much of the existing literature which has tended to support the origin principle under imperfect competition with a fixed market structure. Copyright Springer Science+Business Media New York 2015

Keywords: Commodity taxation; Trade; Imperfect competition; Foreign direct investment; Economic integration; F12; H20 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:kap:itaxpf:v:22:y:2015:i:5:p:811-833

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DOI: 10.1007/s10797-014-9332-1

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