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The choice of commodity tax base in the presence of horizontal foreign direct investment

McCracken, Scott

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Abstract

We analyse the choice of commodity tax base, when countries set their taxes non-cooperatively in a reciprocal dumping model of homogeneous goods trade with horizontal foreign direct investment (FDI). We show that the consumption base (destination principle) weakly welfare-dominates the production base (origin principle) for a large range of plant fixed costs. When integration is complete, the destination principle dominates the origin principle for all levels of plant fixed costs below which FDI occurs under the origin principle. This contrasts with much of the existing literature which has tended to support the origin principle under imperfect competition with a fixed market structure.

Journal Article Type Article
Publication Date Oct 30, 2015
Journal International tax and public finance
Print ISSN 0927-5940
Electronic ISSN 1573-6970
Publisher Springer Verlag
Peer Reviewed Peer Reviewed
Volume 22
Issue 5
Pages 811-833
APA6 Citation McCracken, S. (2015). The choice of commodity tax base in the presence of horizontal foreign direct investment. International tax and public finance, 22(5), 811-833. https://doi.org/10.1007/s10797-014-9332-1
DOI https://doi.org/10.1007/s10797-014-9332-1
Keywords Commodity taxation, Trade, Imperfect competition, Foreign direct investment, Economic integration
Publisher URL http://link.springer.com/article/10.1007%2Fs10797-014-9332-1
Copyright Statement ©2016 University of Hull
Additional Information Author's accepted manuscript of article published in: International tax and public finance, 2015, v.22, issue 5. The final publication is available at Springer via http://dx.doi.org/10.1007/s10797-014-9332-1

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