International Tax and Public Finance

, Volume 17, Issue 2, pp 91–113 | Cite as

Economic integration and the choice of commodity tax base with endogenous market structures



This paper analyzes the choice of commodity tax base when countries set their taxes noncooperatively in a two-country symmetric reciprocal dumping model of intraindustry trade with free entry and trade costs. We show that the consumption base (destination principle) dominates the production base (origin principle) when trade costs are high or demand is linear. For lower levels of trade costs and nonlinear demand, the welfare ranking of the two tax bases is ambiguous. Hence, there is no clear preference for a tax principle with an ongoing movement toward closer economic integration.


Economic integration Commodity taxation Trade Imperfect competition Endogenous market structures 

JEL Classification

F12 H20 


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Copyright information

© Springer Science+Business Media, LLC 2009

Authors and Affiliations

  1. 1.School of EconomicsAustralian National UniversityCanberraAustralia
  2. 2.Department of EconomicsUniversity of OtagoDunedinNew Zealand

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