Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/191390 
Year of Publication: 
2018
Series/Report no.: 
CESifo Working Paper No. 7365
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We develop a tax competition model that allows for the setting of both an origin-based and a destination-based commodity tax rate in the presence of avoidance and evasion. In the presence of evasion, jurisdictions will give cross-border shoppers tax preferential treatment, thus not fully exploiting the potential of destination-based taxation. Moreover, the divergence between origin-based and destination-based taxes is stronger when the incentives for consumers’ tax-arbitrage opportunities increase. The United States is one example of many such systems. While sales taxes are due at the point of sale, use taxes are due on goods purchased out-of-state. We document that when able to set both rates, a majority of jurisdictions levy destination-based use taxes at a lower rate than origin-based sales taxes. In response to changes in state-level policies that increase tax avoidance opportunities, the results of the empirical model broadly confirm our theory.
Subjects: 
tax evasion
tax avoidance
destination taxation
origin taxation
tax competition
use tax
sales tax
JEL: 
C72
H21
H25
H26
H77
P16
R51
Document Type: 
Working Paper
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