Lessons of the 1999 Abolition of Intra-EU Duty Free Sales for the New EU Member States

The abolition of intra-EU duty free was critically discussedand accompanied by a vigorous and well-financed lobbying campaignby the duty free industry. The opponents of this resolutionargued that such a tax-free sales sector created jobs and hardlyreduced the value added and excise tax revenue of individualcountries. In their opinion, the duty free trade not only contributedto the reduction of the travel fare but also could be characterisedas a supplement to the normal retail trade for some products.The challenges for some specific industries led by the abolitionof duty free shopping appear to be considerable in the short-term.However, theoretical and empirical examinations made in thisstudy suggest: (a) intra-EU duty free shopping disturbs theallocation neutrality guaranteed in the single market, (b) macroeconomicsignificance of duty free shopping is rather negligible, and(c) some background studies made for the lobbyists exaggeratethe negative impacts of eliminating intra-EU duty free shopping.These three important arguments, which can also be applied tothe new EU Member States, justify the abolition of intra-EUduty free shopping. (JEL F10; F15; F18; E62; P20)