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Paternalism and Tax Competition
Author(s) -
Kotakorpi Kaisa
Publication year - 2009
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/j.1467-9442.2008.01557.x
Subject(s) - paternalism , economics , public economics , harmonization , competition (biology) , indirect tax , tax reform , tax competition , government (linguistics) , optimal tax , microeconomics , market economy , ecology , linguistics , philosophy , physics , acoustics , biology
When consumers make mistakes, the government may wish to use paternalistic taxation as a corrective measure. We analyse the extent to which tax competition undermines the feasibility of paternalistic taxation. We show that the paternalistic component of a tax on a harmful good is reduced when there is cross‐border shopping, but it does not disappear altogether. In a model with tax competition between two countries, only one of which has a paternalistic objective, we show that a minimum tax rate requirement can be Pareto improving despite the divergence in policy objectives. Tax harmonization, however, reduces welfare in the non‐paternalistic country.