Discussion Papers 2016
CIRJE-F-1014 | "Indirect Taxes in the Cross-border Shopping Model: A Monopolistic Competition Approach" |
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Author Name | Aiura, Hiroshi and Hikaru Ogawa |
Date | May 2016 |
Full Paper | |
Remarks | Forthcoming in Journal of Economics. |
Abstract |
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Within the framework of cross-border shopping with monopolistic competition, we examine the relative merits of an ad valorem (ADV) tax and a unit (specic) tax as indirect tax methods. Our study focuses on how the opening of borders and the entry of rms affect the equilibrium under each tax method. Our ndings reveal that the ADV tax method is superior to the unit tax method in terms of tax revenue and welfare. In addition, while the entry of rms and opening of borders reduce the dominance of tax revenue under the ADV tax method, they increase the method's merits from a welfare perspective. |
Keywords: monopolistic competition, spatial tax competition, unit (specific) tax, ad valorem tax. |