Commodity taxation and regulatory competition
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The purpose of this paper is twofold. We first investigate whether product market regulations affect commodity taxation in open-to-trade economies, and second, we study the strategic interaction in regulatory measures between trading partner countries. We present a two-country general equilibrium model in which destination-based commodity taxes finance public goods, and product market regulation affects both the number of firms in the market and product diversity. Based on data for 21 OECD countries over the 1990–2008 period, we provide empirical evidence suggesting that product market regulations are strategic complement policies and that domestic regulations have a negative impact on domestic commodity taxation.
KeywordsRegulation Commodity tax Strategic interactions
JEL ClassificationF0 H1 H7 H87 L5
We are grateful to the editor and two anonymous referees for very useful comments. We also thank Michel Beine, Marie-Laure Breuillé, Jan K. Brueckner, Giacomo De Giorgi, Andreas Haufler, Anders Jensen, Anastasia Litina, Mathieu Parenti, Michele Pellizzari, Stephane Riou, Grégoire Rota Graziosi, Claus Thustrup Kreiner for valuable comments. We also thank colleagues who attended presentations at the Universities of California Irvine, Strasbourg, Luxembourg, Milan, Brussels, Copenhagen, Lund, Aarhus, LMU Munich and the Copenhagen Business School, the 28th Annual Conference of the European Economic Association in Gothenburg, the PET conference 2013, the workshop ‘Public policies and spatial economics, 2013’ in Lyon, the 2nd InsTED Workshop 2014, the 2015 ZEW Public Finance Conference in Mannheim, the 2015 IEB Workshop on Economics of Taxation in Barcelona, the 2015 SIEP Conference in Ferrara, 1st Belgo-Japanese Public Finance workshop at CORE, 2016, for very helpful discussions. The usual disclaimer applies. This project was supported by the grant F2R-CRE-PUL-10EGQH at the University of Luxembourg.
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