Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/18068
Year of Publication: 
2003
Series/Report no.: 
DIW Discussion Papers No. 332
Publisher: 
Deutsches Institut für Wirtschaftsforschung (DIW), Berlin
Abstract: 
We analyze non-cooperative commodity taxation in a two-country trade model characterized by monopolistic competition and international firm and capital mobility. In this setting, taxes in one country affect foreign welfare through the relocation of mobile firms and through changes in the rents accruing to capital owners. With consumption-based taxation, these fiscal externalities exactly offset each other and the non-cooperative tax equilibrium is Pareto efficient. With production-based taxation, however, there are additional externalities on the foreign tax base and the foreign price level which lead non-cooperative tax rates to exceed their Pareto efficient levels.
Subjects: 
tax competition
market imperfections
international trade
JEL: 
H87
H21
F12
Document Type: 
Working Paper

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