Destination- versus Origin-based Commodity Taxation and the Location of Industry

Jacques Thisse, Jonathan Hamilton, Gianmarco Ottaviano and Kristian Behrens

No 4671, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This Paper studies the positive aspects of destination vs. origin principles of commodity taxation as well as tax harmonization, with an emphasis on the international implications of these measures when firms are mobile. We investigate the tax incidence of these two principles on price levels and uncover how taxes and trade costs interact. While under the destination principle an increase in the tax rate of a country always causes some firms to relocate to the other, this effect may get reversed under the origin principle when economic integration is deep enough, so that a tax increase leads to an inflow of capital.

Keywords: Commodity tax; Origin principle; Destination principle; Tax harmonization; Home market effect (search for similar items in EconPapers)
JEL-codes: F12 H22 H87 R12 (search for similar items in EconPapers)
Date: 2004-10
New Economics Papers: this item is included in nep-geo and nep-pbe
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