DP6580 Commodity Taxation and Parallel Imports

Author(s): Pascalis Raimondos, Nicolas Schmitt
Publication Date: November 2007
Keyword(s): commodity taxation, market integration, Parallel import
JEL(s): F12, F15, H21, H24
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=6580

We examine the interaction between commodity taxes and parallel imports in a simple two-country model with imperfect competition. While governments determine non-cooperatively their commodity tax rate, the volume of parallel imports is determined endogenously by the retailing sector. We compare the positive and normative implications of having commodity taxes based on destination or origin principle. Origin taxes are shown to have very attractive properties: they lead to lower levels of optimal taxes, they converge as parallel imports increase (while destination taxes diverge), and they lead to higher welfare levels.