Unit Tax versus Ad Valorem Tax: A Tax Competition Model with Cross-border Shopping

Hikaru Ogawa and Hiroshi Aiura

ERSA conference papers from European Regional Science Association

Abstract: Within the framework of spatial tax competition with cross-border shopping, we examine the choice of tax method between ad valorem tax and unit (specific) tax. The paper shows that governments endogenously choose ad valorem tax not because of a classic welfare reason, but because it is a good strategy in competing for mobile customers. Another key finding is that while governments are committed to the ad valorem tax method, the choice is not efficient; Tax-cutting competition becomes more serious when countries adopt ad valorem tax, and competition in ad valorem tax yields smaller payoffs than competition in unit tax.

Date: 2012-10
New Economics Papers: this item is included in nep-pbe and nep-pub
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https://www-sre.wu.ac.at/ersa/ersaconfs/ersa12/e120821aFinal00430.pdf (application/pdf)

Related works:
Journal Article: Unit tax versus ad valorem tax: A tax competition model with cross-border shopping (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:wiw:wiwrsa:ersa12p428

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