Asymmetric commodity tax competition: Are tax rates always too low?

Andreas Haufler

No 295, Discussion Papers, Series II from University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy"

Abstract: A widely noticed result by de Crombrugghe and Tulkens (1990) states that asymmetric commodity tax competition always leads to tax rates being too low in both countries, even though there are counteracting tax base and terms of trade effects. This note argues that the result depends crucially on the assumption that welfare in the high-tax region is concave in the tax rate of the low-tax country and shows that this assumption cannot generally be met in the underlying Mintz and Tulkens (1986) model. It is also shown that a tax increase in the low-tax country will hurt the high-tax region when the marginal transaction cost schedule is sufficiently elastic with respect to the level of cross-border shopping.

Keywords: commodity tax competition; fiscal externalities (search for similar items in EconPapers)
JEL-codes: H23 H73 (search for similar items in EconPapers)
Date: 1996
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:kondp2:295

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