On the optimal tax policy mix when consumers and firms are imperfectly mobile

Bernd Genser () and Andreas Haufler

No 330, Discussion Papers, Series II from University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy"

Abstract: An optimal taxation approach is employed to discuss the interaction between factor and commodity taxes for a small open economy when both profit-earning firms and domestic consumers are imperfectly mobile internationally. In this framework, we demonstrate two main results: first, a destination-based commodity tax dominates an origin-based VAT from an efficiency perspective since the first is an independent instrument in the presence of non-wage income, whereas the latter can be duplicated by an appropriate combination of wage and (cash-flow) profit taxation. Second, with mobility costs for firms the optimal profit tax is positive even if the location of firms imposes no social costs on the small country. Simulation results show how the optimal mix of wage, profit and consumption taxes depends on key model parameters.

JEL-codes: H21 H25 H73 R30 (search for similar items in EconPapers)
Date: 1997
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:kondp2:330

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