Indirect Taxation in an Integrated Europe. Is there a Way of Avoiding Trade Distortions Without Sacrificing National Tax Autonomy?

Bernd Genser (), Andreas Haufler and Peter Birch Soerensen

No 93-02, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics

Abstract: The paper discusses the main arugments for destination-versus-origin-based commodity taxation in the European Community's Internal Market. Destination-based solutions necessarily distort commodity trade in the Community because final consumer purchases can only be taxed in the origin country. On the other hand, an origin-based general consumption tax is not only neutral in a European context but it can also be combined with destination-based taxation in third countries in a non-distortive way. Furthermore, it is shown that the introduction of capital mobility does not affect the neutrality of an origin-based consumption tax. Finally, the paper addresses the administrative and political implications of a switch to the origin principle in the European Community.

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