Public Good Provision and the Welfare Effects of Indirect Tax Harmonisation

Sajal Lahiri and Pascalis Raimondos ()

No 95-13, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics

Abstract: The paper considers the welfare effect of the harmonisation of indirect taxes which finances the production of a non-tradeable public good. Such harmonisation affects the prices of the private goods not only directly but also via changes in public good provision in each country. The welfare levels are affected via three channels: (i) changes in the prices of the private goods, (ii) changes in the levels of public good provision, and (iii) changes in deadweight loss associated with the taxes. We develop a number or rules of harmonisation and derive conditions under which they lead to potential and strict Pareto improvement.

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Journal Article: Public good provision and the welfare effects of indirect tax harmonisation (1998)
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