Commodity tax harmonisation and public goods

Tacit collusion and international commodity taxation

“…If competition in the goods market is perfect, and the government faces no revenue constraint, then an approximation of tax rates leads to aggregate welfare gains, as it improves exchange efficiency under the destination principle (Keen, 1987(Keen, , 1989 and production efficiency under the origin principle (Lopez-Garcia, 1996). The conditions for tax harmonization to constitute a Pareto improvement become much more stringent, however, when tax revenues are needed to finance a public good (Delipalla, 1997;Lockwood, 1997;Lahiri and Raimondos-Møller, 1998;Lopez-Garcia, 1998). …”

Indirect tax harmonization and global public goods

“…Delipalla (1997) incorporated local public goods into the framework of Keen (1987) and showed that the Keen's (1987) tax-harmonizing reforms under the destination principle can lead to a potential Pareto improvement 9 under a fairly restrictive condition: That of the tax-harmonizing reforms satisfying conditional revenue neutrality. 10 This is also true under the origin principle of taxation, Kotsogiannis, Lopez-Garcia and Myles (2005).…”

“…24 Suppose for instance-something that, arguably, seems to be a very restrictive requirement-the reforms are conditional neutral (as in Delipalla (1997)). In this case d (G + G * ) = 0, implying that the welfare loss of one country (as a consequence of tax harmonization) is exactly offset by the welfare gain of the other.…”

On welfare and revenue effects of indirect tax harmonization

“…As a consequence, this assumption has been pointed out as one of the main limitations of the analysis in its application as a support to the harmonization efforts that have been carried out in the European Union. Subsequent papers by Delipalla (1997), Lockwood (1997) and Lahiri and Raimondos (1997) have discussed the effects of KeenAEs rules as well as other harmonization rules in the presence of local public goods provision in different frameworks. Although there are important differences in their frameworks, one can advance that there may be a welfare case for tax harmonization even when the governments use tax revenue to finance the provision of public goods.…”