Economic integration and the choice of commodity tax base with endogenous market structures |
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Authors: | Scott McCracken Frank Stähler |
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Institution: | 1.School of Economics,Australian National University,Canberra,Australia;2.Department of Economics,University of Otago,Dunedin,New Zealand |
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Abstract: | This paper analyzes the choice of commodity tax base when countries set their taxes noncooperatively in a two-country symmetric
reciprocal dumping model of intraindustry trade with free entry and trade costs. We show that the consumption base (destination
principle) dominates the production base (origin principle) when trade costs are high or demand is linear. For lower levels
of trade costs and nonlinear demand, the welfare ranking of the two tax bases is ambiguous. Hence, there is no clear preference
for a tax principle with an ongoing movement toward closer economic integration. |
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