Commodity taxation and parallel imports |
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Authors: | Pascalis Raimondos-Møller Nicolas Schmitt |
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Institution: | 1. Department of Economics, Copenhagen Business School, Porcelanshaven 16A, 2000 Frederiksberg, Denmark;2. CEPR, United Kingdom |
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Abstract: | We examine the interaction between commodity taxes and parallel imports in a two-country model with imperfect competition. While governments determine non-cooperatively their commodity tax rate, the volume of parallel imports is determined endogenously by the retailing sector. We compare the positive and normative implications of having commodity taxes based on destination or origin principle. We show that, as the volume of parallel imports increases, non-cooperative origin taxes converge, while destination taxes diverge. Moreover, origin taxes are more similar and lead to higher aggregate welfare levels than destination taxes. |
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