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Journal of Economics

, Volume 128, Issue 2, pp 147–175 | Cite as

Indirect taxes in a cross-border shopping model: a monopolistic competition approach

  • Hiroshi AiuraEmail author
  • Hikaru Ogawa
Article
  • 101 Downloads

Abstract

In a model of cross-border shopping with monopolistic competition, we examine the relative merits of an ad valorem (ADV) tax and a unit (specific) tax. Our focus is on the effects of the opening of borders that enables consumption outside the country of the residence. The result shows that the increased cross-border shopping may strengthen or weaken the superiority of either of the two tax methods, depending on the relative weight that the government places on tax revenue and welfare. Specifically, while cross-border shopping always increases the welfare of all countries in ADV tax competition, welfare increases only when the governments place a large weight on tax revenue in unit tax competition. Cross-border shopping lowers welfare when governments with high weight on welfare compete in unit tax.

Keywords

Monopolistic competition Spatial tax competition Unit and ad valorem taxes 

JEL Classification

H2 H7 

Notes

Acknowledgements

An earlier version of this paper was presented at ARSC2013 and NARSC2013. We would like to thank Takanori Ago and Johan Lundberg for their helpful comments. In addition, the comments of anonymous referees and the editor Giacomo Corneo have substantially improved this paper. Any mistakes herein are, of course, our own. The research has been supported by JSPS KAKENHI (Grant Numbers JP25245042, JP16K12374, JP17H02533, JP18H00865, JP18K01632), and the Nitto Foundation.

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Copyright information

© Springer-Verlag GmbH Austria, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Faculty of EconomicsNanzan UniversityShowa-kuJapan
  2. 2.Graduate School of Economics and Graduate School of Public PolicyUniversity of TokyoTokyoJapan

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