Tax Competition Under Minimum Rates: The Case of European Diesel Excises

Tinbergen Institute Discussion Paper No. 04-062/3

27 Pages Posted: 1 Jul 2004

See all articles by Michiel Evers

Michiel Evers

Tinbergen Institute - Economics

Ruud A. De Mooij

International Monetary Fund (IMF); CESifo (Center for Economic Studies and Ifo Institute); Oxford University Centre for Business Taxation

Herman R.J. Vollebergh

PBL Netherlands Environmental Assessment Agency (Bilthoven); Tilburg Unversity ; CESifo Institute; Tilburg Sustainability Centre; Tilburg University - Tilburg University School of Economics and Management

Date Written: June 2004

Abstract

This paper estimates Nash-type fiscal reaction functions for European governments competing for revenue from diesel excises. It appears that European governments strategically set their excise levels by responding to their neighbors' tax rates. This provides evidence for the presence of tax competition in diesel excises. In fact, a 10% higher rate in neighboring countries (in terms of the user price) induces a country to raise its own rate by between 2 and 3%. This impact is robust for alternative specifications. By imposing restrictions on excise levels, EU harmonization of excises in 1987 and the introduction of a minimum in 1992 exerted a positive impact on the excise level in a number of EU countries. It has not, however, significantly reduced the intensity of tax competition. Indeed, strategic tax responses have not significantly been reduced by these harmonization policies. We also find that high-tax countries appear to compete more aggressively than low-tax countries in the sense that they feature larger strategic tax responses. There is no significant difference between large and small countries.

Keywords: Diesel excise, Strategic tax setting, Minimum rates, European Union

JEL Classification: H23, H77, H87, R4

Suggested Citation

Evers, Michiel and De Mooij, Ruud A. and Vollebergh, Herman R.J., Tax Competition Under Minimum Rates: The Case of European Diesel Excises (June 2004). Tinbergen Institute Discussion Paper No. 04-062/3, Available at SSRN: https://ssrn.com/abstract=555780 or http://dx.doi.org/10.2139/ssrn.555780

Michiel Evers

Tinbergen Institute - Economics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Ruud A. De Mooij (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Oxford University Centre for Business Taxation ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

HOME PAGE: http://people.few.eur.nl/demooij/

Herman R.J. Vollebergh

PBL Netherlands Environmental Assessment Agency (Bilthoven) ( email )

Bezuidenhoutseweg 30
Den Haag, 2594 AV
Netherlands
+31655736920 (Phone)

Tilburg Unversity ( email )

Tilburg
Netherlands

HOME PAGE: http://www.tilburguniversity.edu/webwijs/show/h.r.j.vollebergh.htm

CESifo Institute ( email )

Munich
Germany

Tilburg Sustainability Centre ( email )

P.O. Box 90153
Tilburg, North Brabant 5000 LE
Netherlands

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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