Trade costs and the choice of international commodity tax base revisited: The role of transboundary pollution. (20th July 2018)

• Record Type: Journal Article
• Authors: Wu, Tsaur‐Chin
• Is Part Of: International journal of economic theory. Volume 15:Number 4(2019:Dec.)
• Page Start: 361
• Page End: 383
• Publication Date: 2018-07-20
• Subjects: imperfect competition -- transboundary pollution -- commodity tax; Economics -- Periodicals; 330.01
• DOI: 10.1111/ijet.12187
• Languages: English
• ISSNs: 1742-7355

Abstract

Abstract : It is generally believed that when trade costs fall, the origin‐based production taxes are superior to the destination‐based consumption taxes under imperfect competition. This result can be justified from a perspective of purely local pollution when considering a production‐type externality. However, we show that with smaller trade costs, the destination‐based consumption taxes tend to generate greater welfare levels than the origin‐based production taxes when the degree of a production‐type transboundary externality is high enough, contrary to general belief.