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Tax competition in the presence of environmental spillovers

Fabio Antoniou (), Panos Hatzipanayotou (), Michael Michael and Nikos Tsakiris ()
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Panos Hatzipanayotou: Athens University of Economics and Business

International Tax and Public Finance, 2022, vol. 29, issue 3, No 3, 600-626

Abstract: Abstract This paper examines the efficiency of destination-and origin-based consumption taxes, in the presence of consumption generated perfect cross-border pollution spillovers, when tax revenue either finances public pollution abatement or it is lump-sum distributed. When consumption tax revenue finances the provision of public pollution abatement and regions have identical and quasi-linear preferences then, the non-cooperative equilibrium origin-based consumption taxes are efficient, while the destination-based consumption taxes are inefficiently low. When, however, consumption tax revenue is lump-sum distributed, then, the destination-based tax principle leads to inefficiently low taxes, while the origin-based tax principle leads either to inefficiently high or low taxes.

Keywords: Environmental spillovers; Efficiency; Tax competition; Tax principles (search for similar items in EconPapers)
JEL-codes: H21 H23 H41 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s10797-021-09680-3

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