Commodity Tax Harmonisation with Public Goods - an Alternative Perspective

Ben Lockwood

No 95-10, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics

Abstract: This paper investigates whether it is possible to find Pareto-improving commodity tax reforms that harmonise taxes between two countries when governments supply public goods and thus have revenue requirements. It is shown that, with two goods, and starting from Nash equilibrium taxes, any harmonising reform will always make both countries worse off (better off) ifthe imported good is taxed less heavily (more heavily) than the exported good by both countries. An example suggests that harmonisation is unlikely to be Pareto-improving if the revenue requirement is high, and the demand for imports is relatively price elastic. An alternative definition of harmonisation, difference harmonisation, which may yield Pareto-improvements under more general conditions, is proposed.

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Related works:
Working Paper: Commodity Tax Harmonization with Public Goods - An Alternative Perspective (1995)
Working Paper: Commodity Tax Hamonisation with Public Goods - An Alternative Perspective (1995)
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