International Tax and Public Finance

, Volume 17, Issue 2, pp 91–113

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

Article

DOI: 10.1007/s10797-008-9099-3

Cite this article as:
McCracken, S. & Stähler, F. Int Tax Public Finance (2010) 17: 91. doi:10.1007/s10797-008-9099-3

Abstract

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.

Keywords

Economic integration Commodity taxation Trade Imperfect competition Endogenous market structures 

JEL Classification

F12 H20 

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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