Commodity Tax Competition with Constrained Taxes

Pascal Belan () and Stephane Gauthier

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Abstract: This paper examines a symmetric Nash equilibria of a two-country model of fiscal competition with a continuum of taxable commodities in each country. The innovation is to impose a uniformity restriction that there can be only two rates of tax on the different commodities, a positive rate and the zero rate. The main results characterize, under two alternative modes of taxation, the equilibrium fiscal rules chosen by countries, i.e., the level of the positive rate and the set of taxed commodities. Under the origin principle, it appears that the equilibrium fiscal base is narrower than the optimal one and the tax rate is too high. In contrast, under the destination principle, the optimal rule is implemented.

Keywords: fiscal competition; origin and destination principles; number of available tax rates (search for similar items in EconPapers)
Date: 2009-08
Note: View the original document on HAL open archive server: https://hal.science/hal-00731318v1
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Published in Journal of Public Economic Theory, 2009, 11 (4), pp.653-665. ⟨10.1111/j.1467-9779.2009.01424.x⟩

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Journal Article: Commodity Tax Competition with Constrained Taxes (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00731318

DOI: 10.1111/j.1467-9779.2009.01424.x

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