Working Paper: CEPR ID: DP733
Authors: Ben Lockwood
Abstract: This paper studies the effect of switching from the destination to the origin principle of taxation on non-cooperative commodity tax equilibrium. When taxes are constrained to uniformity across commodities, the switch has no effect. When differentiated taxes are allowed, the effects of the switch depend on whether countries are small or large. In both cases the switch imposes the requirement that taxes must be uniform across commodities within each country. In the second case there are two further effects of the switch: (i) the introduction of negative spillover effects from tax policy; and (ii) a change in incentives to manipulate the terms of trade. The switch does not necessarily lead to a fall in all tax rates.
Keywords: tax competition; customs union; border controls; destination and origin regimes
JEL Codes: E62; F15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| switching from destination taxation to origin taxation (F38) | real effects (E65) |
| switching from destination taxation to origin taxation with differentiated taxes (H29) | change in tax rates (H29) |
| change in tax rates (H29) | welfare reductions for small countries (I38) |
| switching from destination taxation to origin taxation for large countries (F38) | new externalities (D62) |
| new externalities (D62) | complicates prediction of tax rate changes (H32) |