Imperfect Competition, Indirect Tax Harmonization and Public Goods.

Paper number: 05/01

Paper date: December, 2004

Year: 2005

Paper Category: Working Paper

Authors

Christos Kotsogiannis and Miguel-Angel Lopez-Garcia

Abstract

In a recent contribution Keen, Lahiri and Raimondos-MØller (2002) (European Economic Review, 46, 1559-1568), in a model of imperfect competition with no revenue effects, show that tax harmonization under the destination principle always makes one country better off and maybe Pareto-improving, whereas under the origin principle, and under certain circumstances, it leads to a strict Pareto-worsening. This paper shows that the welfare implications of (destination- and origin-based) tax harmonization are, in general, indeterminate when public goods are present. A consequence of this is that the choice of the tax principle and the harmonization of tax rates across countries can be considered in isolation.

Imperfect Competition, Indirect Tax Harmonization and Public Goods. Imperfect Competition, Indirect Tax Harmonization and Public Goods.