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On commodity tax harmonization and public goods provision
Author(s) -
Kotsogiannis Christos,
LopezGarcia MiguelAngel
Publication year - 2021
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/jpet.12535
Subject(s) - commodity , economics , harmonization , context (archaeology) , pareto optimal , tax harmonization , divergence (linguistics) , microeconomics , indirect tax , tax reform , public good , public economics , pareto principle , multi objective optimization , finance , mathematical optimization , operations management , tax competition , mathematics , paleontology , linguistics , philosophy , physics , acoustics , biology
This paper argues that Pareto improvements based on harmonizing tax reforms expressed in terms of the divergence between actual and optimal tax structures and over/under provision of public goods require the use of ‘pseudo‐optimal’ taxes instead of optimal ones. ‘Pseudo‐optimal’ taxes are defined as those obtained using the optimal tax formulas but evaluated at any arbitrary initial tax structure. Within this context the paper reconfirms existing results showing that tax harmonization emerges as a strong policy instrument in achieving a potential Pareto‐improvement.