Destination vs. Origin-based Commodity Taxation and the Location of Industry

Kristian Behrens (behrens.kristian@uqam.ca), Jonathan Hamilton, Gianmarco Ottaviano and Jacques Thisse

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Abstract: We study the positive implications of commodity taxation and tax harmonization under the destination and origin principles when firms are monopolistic competitors facing variable demand elasticity and segmented markets. Our emphasis is on the international location of firms in the presence of market size asymmetries and trade costs. 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 be reversed under the origin principle when economic integration is deep enough. Under tax harmonization the choice of a common tax principle is irrelevant for the market outcomes and for the global tax revenues. It affects, however, the distribution of revenues between small and large countries.

Keywords: Commodity tax; Destination principle; Origin principle; Tax harmonization; Home market effect (search for similar items in EconPapers)
Date: 2007-07
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Published in Journal of International Economics, 2007, 72 (2), pp.271-291. ⟨10.1016/j.jinteco.2006.08.002⟩

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Working Paper: Destination vs. Origin-based Commodity Taxation and the Location of Industry (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00754215

DOI: 10.1016/j.jinteco.2006.08.002

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