Tax Coordination with Different Preferences for Public Goods: Conflict or Harmony of Interest?

Andreas Haufler

Munich Reprints in Economics from University of Munich, Department of Economics

Abstract: The paper analyzes strategic commodity taxation in a model with trade in a single private good that is simultaneously imported by consumers of a high-tax country and exported by its producers. Conditions for the existence of a Nash equilibrium are given, and an asymmetry is introduced through different preferences for public goods. Two tax coordination measures are discussed - a minimum tax rate and a coordinated increase in the costs of cross-border shopping. It is shown that tax coordination generally benefits the high-tax country while the low-tax country will gain only if the intensity of tax competition is high in the initial equilibrium or if governments are price-sensitive toward the effective marginal costs of public good supply.

Date: 1996
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Published in International Tax and Public Finance 1 3(1996): pp. 5-28

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Journal Article: Tax coordination with different preferences for public goods: Conflict or harmony of interest? (1996)
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