International Tax and Public Finance

, Volume 21, Issue 1, pp 29–49 | Cite as

Indirect tax harmonization and global public goods

  • Ourania Karakosta
  • Christos Kotsogiannis
  • Miguel-Angel Lopez-Garcia


This paper identifies conditions under which, starting from any tax-distorting equilibrium, destination- and origin-based indirect tax-harmonizing reforms are potentially Pareto improving in the presence of global public goods. The first condition (unrequited transfers between governments) requires that transfers are designed in such a way that the marginal valuations of the global public goods are equalized, whereas the second (conditional revenue changes) requires that the change in global tax revenues, as a consequence of tax harmonization, is consistent with the under/over-provision of global public goods relative to the (modified) Samuelson rule. Under these conditions, tax harmonization results in redistributing the gains from a reduction in global deadweight loss and any changes in global tax revenues according to the Pareto principle. And this is the case independently of the tax principle in place (destination or origin).


Origin principle Destination principle Indirect tax harmonization Reform of commodity taxes Global/local public goods 

JEL Classification

F15 H21 H41 H87 



We thank two anonymous referees and the editor of the journal for comments and advice on an earlier version of this paper. We also thank Paulina Navrouzoglou for insightful discussions and seminar participants at Athens University of Economics and Business and the XVIII Encuentro de Economia Publica held at the University of Malaga for comments. Any remaining errors are of course ours. This is a version of an earlier paper circulated as ‘Does indirect tax harmonization deliver Pareto improvements in the presence of global public goods?’ Financial support from the Catalan Government Science Network (2009SGR-600 and XREPP) and the Spanish Ministry of Education and Science Research Project (ECO2009-10003) is gratefully acknowledged (Kotsogiannis and Lopez-Garcia).


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Copyright information

© Springer Science+Business Media, LLC 2012

Authors and Affiliations

  • Ourania Karakosta
    • 1
  • Christos Kotsogiannis
    • 1
    • 2
  • Miguel-Angel Lopez-Garcia
    • 3
  1. 1.Department of EconomicsUniversity of Exeter Business SchoolStreatham CourtUK
  2. 2.CESIfoMunichGermany
  3. 3.Departamento de Economia AplicadaUniversidad Autonoma de BarcelonaBellaterra, BarcelonaSpain

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