Welfare, Revenue and Indirect Tax Harmonization under the Origin Principle
Miguel Angel López-García
This paper discusses whether some propositions concerning the effects of indirect tax harmonization that have been derived when taxes are levied on a destination basis and revenue is returned to the individuals as a lump-sum transfer can, when accurately reformulated, be extended to a framework where commodities are taxed according to the origin principle and the governments use their revenue to finance the purchase of goods and services. Using a two-country model, it is argued that a non-uniform proportional convergence of domestic taxes towards a properly designed «average » tax structure can be characterized as potentially Pareto-improving. However, these reforms will not, in general, lead to a strict Pareto-improvement where every country is better off without any need for international transfers.
: indirect tax harmonization, origin principle, reform of commodity taxes.
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