Commodity Tax Competition with Constrained Taxes

Pascal Belan (1) , Stéphane Gauthier (2, 3)

1 LEMNA - Laboratoire d'économie et de management de Nantes Atlantique
2 ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique
3 CREST-INSEE - Centre de Recherche en Economie et en Statistique

This paper examines a symmetric Nash equilibria of a two-country model of fiscal competition with a continuum of taxable commodities in each country. The innovation is to impose a uniformity restriction that there can be only two rates of tax on the different commodities, a positive rate and the zero rate. The main results characterize, under two alternative modes of taxation, the equilibrium fiscal rules chosen by countries, i.e., the level of the positive rate and the set of taxed commodities. Under the origin principle, it appears that the equilibrium fiscal base is narrower than the optimal one and the tax rate is too high. In contrast, under the destination principle, the optimal rule is implemented.

Mots clés: fiscal competition; origin and destination principles; number of available tax rates

Domaines: Economies et finances

Pascal Belan, Stéphane Gauthier. Commodity Tax Competition with Constrained Taxes. Journal of Public Economic Theory, 2009, 11 (4), pp.653-665. ⟨10.1111/j.1467-9779.2009.01424.x⟩. ⟨hal-00731318⟩