Foreign vs. domestic outsourcing: Does VAT taxation of intermediate commodities under destination and origin principles matter?

Giuseppe Bognetti () and Michele Santoni

No unimi-1046, UNIMI - Research Papers in Economics, Business, and Statistics from Universitá degli Studi di Milano

Abstract: This paper considers the effects of destination vs. origin principles of intermediate commodity taxation on the organisational structure of firms in the presence of imperfectly competitive product and labour markets. The paper considers a unionised monopoly firm producing a final good by using two intermediate commodities, one of which can be imported. The paper shows that, when the origin principle is adopted, the ratio between the domestic and the foreign VAT rates on intermediates is relevant and organisational choices depend on this ratio, while VAT rates have no effects under the destination principle. In the case of linear or constant elasticity product demand curves, lower domestic rates will disincentive foreign sourcing, while lower foreign tax rates will represent an incentive.

Keywords: VAT; destination principle; origin principle; intermediate goods; outsourcing., (search for similar items in EconPapers)
Date: 2007-01-18
Note: oai:cdlib1:unimi-1046
References: Add references at CitEc
Citations:

Downloads: (external link)
http://services.bepress.com/unimi/economics/art17 (application/pdf)

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:bep:unimip:unimi-1046

Access Statistics for this paper

More papers in UNIMI - Research Papers in Economics, Business, and Statistics from Universitá degli Studi di Milano Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F. Baum ().