Discussion Papers 2016

CIRJE-F-1014

"Indirect Taxes in the Cross-border Shopping Model: A Monopolistic Competition Approach"

Author Name

Aiura, Hiroshi and Hikaru Ogawa

Date

May 2016

Full Paper

PDF File

Remarks

Forthcoming in Journal of Economics.

Abstract

Within the framework of cross-border shopping with monopolistic competition, we examine the relative merits of an ad valorem (ADV) tax and a unit (speci c) 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.