International Tax and Public Finance

, Volume 18, Issue 2, pp 214–232 | Cite as

Country characteristics and preferences over tax principles

  • Nigar Hashimzade
  • Hassan Khodavaisi
  • Gareth D. Myles


The European Union has long maintained an intention to move to the origin principle of taxation, but no progress has been made since the completion of the single market. The lack of progress seems surprising, given the significant support for the origin principle in the economic literature. However, there is a contrast between the European Union that contains countries of widely different sizes and productivity levels, and the theoretical literature that has focused on models with symmetrical countries. We extend the modelling of preferences over tax principles to incorporate asymmetries in efficiency and size. We show that asymmetry can cause disagreement among countries over tax principles to be sustained even with close economic integration. Large countries and inefficient countries are shown to prefer the origin principle. In contrast, small countries and efficient countries can have a preference for the destination principle. These results provide an insight into the political economy of the impasse in European Union tax policy.


Tax principles International taxation Imperfect competition 

JEL Classification

F12 H20 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Brander, J. A., & Spencer, B. (1985). Export subsidies and international market share rivalry. Journal of International Economics, 18, 83–100. CrossRefGoogle Scholar
  2. Guesnerie, R., & Laffont, J.-J. (1978). Taxing price makers. Journal of Economic Theory, 19, 423–455. CrossRefGoogle Scholar
  3. Hashimzade, H., Khodavaisi, H., & Myles, G. D. (2005). Tax principles, product differentiation and the nature of competition. International Tax and Public Finance, 12, 695–712. CrossRefGoogle Scholar
  4. Haufler, A., & Pfluger, M. (2004). Commodity taxation under monopolistic competition. Journal of Public Economic Theory, 6, 445–470. CrossRefGoogle Scholar
  5. Haufler, A., Schjelderup, G., & Stahler, F. (2005). Barriers to trade and imperfect competition: the choice of commodity tax base. International Tax and Public Finance, 12, 281–300. CrossRefGoogle Scholar
  6. Keen, M., & Lahiri, S. (1998). The comparison between destination and origin principles under imperfect competition. Journal of International Economics, 45, 323–350. CrossRefGoogle Scholar
  7. Lockwood, B., de Meza, D., & Myles, G. D. (1994a). When are origin and destination regimes equivalent? International Tax and Public Finance, 1, 5–24. CrossRefGoogle Scholar
  8. Lockwood, B., de Meza, D., & Myles, G. D. (1994b). The equivalence between destination and non-reciprocal restricted origin tax regimes. Scandinavian Journal of Economics, 96, 311–328. CrossRefGoogle Scholar
  9. Tinbergen Committee (1953). Report on the Problems Raised by Value Added Taxation in the Common Market. Google Scholar
  10. Vives, X. (1984). Duopoly information equilibrium: Cournot and Bertrand. Journal of Economic Theory, 34, 71–94. CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC 2010

Authors and Affiliations

  • Nigar Hashimzade
    • 1
  • Hassan Khodavaisi
    • 2
  • Gareth D. Myles
    • 3
    • 4
  1. 1.School of EconomicsUniversity of ReadingReadingUK
  2. 2.University of UrmiaUrmiaIran
  3. 3.University of ExeterExeterUK
  4. 4.Institute for Fiscal StudiesLondonUK

Personalised recommendations