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Author: | Kotakorpi, K. |
Title: | Paternalism and tax competition |
Journal: | Scandinavian Journal of Economics
2009 : VOL. 111:1, p. 125-149 |
Index terms: | taxation competition commodities border regions shopping consumers models |
Language: | eng |
Abstract: | The government may wish to use paternalistic taxation (hereafter as: pat-tax.) as a corrective measure when consumers make mistakes. This paper analyzes the extent to which tax competition (as: cmptn.) undermines the feasibility of pat-tax. It is shown that the paternalistic (as: pat-ic) component of a tax on a harmful good is reduced when there is cross-border shopping. However, it does not disappear altogether. In a model with tax cmptn. btw. two countries, only one of which has a pat-ic objective, it is shown that a minimum tax rate requirement can be Pareto improving despite the divergence in policy objectives. Tax harmonization, however, reduces welfare in the non-pat-ic country. |
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