Commodity Taxation and International Trade in Imperfect Markets
33 Pages Posted: 28 Jan 2001
Date Written: December 2000
This paper studies non-cooperative commodity taxation in a trade model with imperfect competition and trade costs. Nationally optimal tax policy simultaneously tries to correct the domestic distortion from imperfect competition and to shift rents to the home country. Importantly, this trade-off depends qualitatively on the international commodity tax regime in operation. For low levels of trade costs, we show that production-based commodity taxes dominate from a global welfare perspective, but this ranking is reversed in favor of consumption-based taxation when trade costs become sufficiently high.
Keywords: Commodity taxation, imperfect competition, strategic trade policy
JEL Classification: F12, H20
Suggested Citation: Suggested Citation