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

McCracken, Scott

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.

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

• Journal Article Type: Article
• Acceptance Date: Jun 7, 2014
• Online Publication Date: Jul 13, 2014
• Publication Date: Oct 30, 2015
• Deposit Date: Feb 9, 2016
• Publicly Available Date: Feb 9, 2016
• Journal: International tax and public finance
• Print ISSN: 0927-5940
• Publisher: Springer Verlag
• Peer Reviewed: Peer Reviewed
• Volume: 22
• Issue: 5
• Pages: 811-833
• DOI: https://doi.org/10.1007/s10797-014-9332-1
• Keywords: Commodity taxation, Trade, Imperfect competition, Foreign direct investment, Economic integration
• Public URL: https://hull-repository.worktribe.com/output/385101
• Publisher URL: http://link.springer.com/article/10.1007%2Fs10797-014-9332-1
• 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
• Contract Date: Feb 9, 2016