Tax Principles and Tax Harmonization under Imperfect Competition: A Cautionary Example

Michael Keen, Sajal Lahiri and Pascalis Raimondos ()

No 518, CESifo Working Paper Series from CESifo

Abstract: This paper shows that under imperfect competition the welfare effects of indirect tax harmonization may depend crucially on whether taxes are levied by the destination or the origin principle. In a standard model of imperfect competition, while harmonization always makes at least one country better off, and may be Pareto-improving, when taxes are levied under the destination principle (which currently applies in the European Union), harmonization of origin-based taxes (as recently proposed by the European Commission) is certain to be Pareto-worsening when the preferences in the two countries are identical, and is likely to be so even when they differ.

Keywords: Harmonization; destination principle; origin principle; commodity taxation (search for similar items in EconPapers)
Date: 2001
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Journal Article: Tax principles and tax harmonization under imperfect competition: A cautionary example (2002)
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