International commodity taxation under monopolistic competition

Haufler, Andreas and Pflüger, Michael (2004): International commodity taxation under monopolistic competition. In: Journal of Public Economic Theory, Vol. 6, No. 3: pp. 445-470

Abstract

We analyze non-cooperative commodity taxation in a two-country trade model characterized by monopolistic competition and international firm and capital mobility. In this setting, taxes in one country affect foreign welfare through the relocation of mobile firms and through changes in the rents accruing to capital owners. With consumption-based taxation, these fiscal externalities exactly offset each other and the non-cooperative tax equilibrium is Pareto efficient. With production-based taxation, however, there are additional externalities on the foreign tax base and the foreign price level that lead non-cooperative tax rates to exceed their Pareto efficient levels.

• Item Type: Journal article
• Faculties: Economics; Economics > Chairs > Seminar for Economic Policy
• Subjects: 300 Social sciences > 330 Economics
• Language: English