Did the Single Market Cause Competition in Excise Taxes? Evidence from EU Countries

Ben Lockwood and Giuseppe Migali

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: The introduction of the Single Market resulted in a switch from destination to origin-based taxation of cross-border transactions by individuals. The theory of commodity tax competition predicts that this change should give rise to excise tax competition and thus intensify strategic interaction in the setting of excise taxes. In this paper, we provide an empirical test of this prediction using a panel data set of 12 EU countries over the period 1987-2004. We find that for all excise duties that we consider (still and sparkling wine, beer, ethyl alcohol, and cigarettes), strategic interaction between countries significantly increased after 1993, consistently with the theoretical prediction. Indeed, for all these products except for cigarettes, there is no evidence of strategic interaction prior to 1993, so our findings are consistent with the hypothesis that the single market caused tax competition. For beer and ethyl alcohol, there is evidence that the minimum taxes, also introduced in 1993, have intensified strategic interaction.

Keywords: tax competition; excise taxes; cross-border shopping (search for similar items in EconPapers)
JEL-codes: H70 H71 H77 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2008
New Economics Papers: this item is included in nep-eec and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Journal Article: Did The Single Market Cause Competition in Excise Taxes? Evidence From EU Countries (2009)
Journal Article: Did The Single Market Cause Competition in Excise Taxes? Evidence From EU Countries (2009)
Working Paper: Did the Single Market Cause Competition in Excise Taxes? Evidence from EU Countries (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:847

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