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On the Principles of Commodity Taxation under Interregional Externalities

Fabio Antoniou (), Panos Hatzipanayotou (), Michael Michael and Nikos Tsakiris ()

University of Cyprus Working Papers in Economics from University of Cyprus Department of Economics

Abstract: We examine the efficiency of decentralized commodity taxation where consumption tax revenue finances public sector activities related to interregional externalities. We consider two cases; tax revenue finances (i) public pollution abatement in the presence of consumption generated transboundary pollution, and (ii) the provision of an interregional public consumption good, in the absence of pollution. The key result of our study is that in either case, non-cooperative equilibrium origin-based consumption taxes are efficient, while destination-based taxes are not. When consumption tax revenue is lump-sum distributed, neither type of consumption taxes is efficient.

Keywords: Commodity taxation; Origin principle; Destination principle; Interregional externalities; Efficiency; Public goods (search for similar items in EconPapers)
JEL-codes: H21 H23 H41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-pbe and nep-pub
Date: 2019-02
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