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Trade costs and the choice of international commodity tax base revisited: The role of transboundary pollution
Author(s) -
Wu TsaurChin
Publication year - 2019
Publication title -
international journal of economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 11
eISSN - 1742-7363
pISSN - 1742-7355
DOI - 10.1111/ijet.12187
Subject(s) - economics , externality , consumption (sociology) , commodity , production (economics) , imperfect competition , welfare , microeconomics , international economics , market economy , social science , sociology
It is generally believed that when trade costs fall, the origin‐based production taxes are superior to the destination‐based consumption taxes under imperfect competition. This result can be justified from a perspective of purely local pollution when considering a production‐type externality. However, we show that with smaller trade costs, the destination‐based consumption taxes tend to generate greater welfare levels than the origin‐based production taxes when the degree of a production‐type transboundary externality is high enough, contrary to general belief.