Working Paper: CEPR ID: DP6580
Authors: Pascalis Raimondosmller; Nicolas Schmitt
Abstract: We examine the interaction between commodity taxes and parallel imports in a simple 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. Origin taxes are shown to have very attractive properties: they lead to lower levels of optimal taxes, they converge as parallel imports increase (while destination taxes diverge), and they lead to higher welfare levels.
Keywords: commodity taxation; market integration; parallel import
JEL Codes: F12; F15; H21; H24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased volumes of parallel imports (F10) | tax convergence (H26) |
| increased parallel imports (F69) | tax divergence (H26) |
| origin-based taxes (H29) | higher overall welfare levels (I31) |
| increased volumes of parallel imports (F10) | adjustments in tax rates (H29) |
| tax rates (H29) | changes in parallel import volumes (F10) |