Abstract
This paper establishes a parallelism between indirect tax harmonization when taxes are levied according to the destination principle and its counterpart when taxes are imposed on an origin basis. Using a simple two-country model of international trade it is argued that, under "normal" circumstances, indirect tax harmonization under the origin principle, considered as a movement of domestic taxes toward an appropriately designed average tax structure, is potentially Pareto improving. It is also shown that if the initial position is a Nash equilibrium, there are "exceptional" situations under which the above-mentioned reform may generate an actual Pareto improvement, so that both countries improve their welfare without any need for a compensating international transfer.
Original language | English |
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Pages (from-to) | 83-93 |
Journal | International Tax and Public Finance |
Volume | 3 |
Issue number | 1 |
DOIs | |
Publication status | Published - 1 Jan 1996 |
Keywords
- Indirect tax harmonization
- Origin principle