Does Indirect Tax Harmonization Deliver Pareto Improvements in the Presence of Global Public Goods?

24 Pages Posted: 23 Jun 2009

See all articles by Ourania Karakosta

Ourania Karakosta

National and Kapodistrian University of Athens

Christos Kotsogiannis

University of Exeter

Miguel-Angel Lopez-Garcia

Autonomous University of Barcelona - Department of Applied Economics

Date Written: June 2009

Abstract

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 direction of inefficiency in global public good provision 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).

Keywords: origin principle, destination principle, indirect tax harmonization, reform of commodity taxes, global/local public goods

JEL Classification: F15, H21, H41, H87

Suggested Citation

Karakosta, Ourania and Kotsogiannis, Christos and Lopez-Garcia, Miguel-Angel, Does Indirect Tax Harmonization Deliver Pareto Improvements in the Presence of Global Public Goods? (June 2009). CESifo Working Paper Series No. 2668. Available at SSRN: https://ssrn.com/abstract=1423729

Ourania Karakosta

National and Kapodistrian University of Athens ( email )

5 Stadiou Strt
Athens, 12131
Greece

Christos Kotsogiannis (Contact Author)

University of Exeter ( email )

Exeter EX4 4QX, Devon
United Kingdom

Miguel-Angel Lopez-Garcia

Autonomous University of Barcelona - Department of Applied Economics ( email )

Departamento de Economía Aplicada
Bellaterra, Barcelona 08193
Spain

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