Discussion Papers 2021

CIRJE-F-1169	"Does E-Commerce Ease or Intensify Tax Competition? Destination Principle vs. Origin Principle"
Author Name	Aiura, Hiroshi and Hikaru Ogawa
Date	June 2021
Full Paper	PDF file
Remarks	Published in International Tax and Public Finance, vol. 31(3), pages 702-735

Abstract
By constructing a commodity tax competition model with product differentiation, this paper studies the relationship between the development of e-commerce and the intensity of tax competition under two different tax principles to be applied to e-commerce: the destination principle and the origin principle. Our main findings are as follows: (i) tax competition between two symmetric countries under the destination principle is more intense than tax competition under the origin principle, and (ii) the development of e-commerce raises the tax rate under the origin principle, but lowers it under the destination principle. An analysis of tax competition among asymmetric countries was also conducted. The finding was that in some cases, the development of e-commerce has changed the tax rate set by large and small countries in opposite directions.
Keywords. product differentiation; e-commerce; origin principle; destination principle

Abstract

By constructing a commodity tax competition model with product differentiation, this paper studies the relationship between the development of e-commerce and the intensity of tax competition under two different tax principles to be applied to e-commerce: the destination principle and the origin principle. Our main findings are as follows: (i) tax competition between two symmetric countries under the destination principle is more intense than tax competition under the origin principle, and (ii) the development of e-commerce raises the tax rate under the origin principle, but lowers it under the destination principle. An analysis of tax competition among asymmetric countries was also conducted. The finding was that in some cases, the development of e-commerce has changed the tax rate set by large and small countries in opposite directions.

Keywords. product differentiation; e-commerce; origin principle; destination principle