TAX PRINCIPLES AND COORDINATION OF TRADE AND DOMESTIC POLICIES UNDER IMPERFECT COMPETITION

We construct an exporting monopoly model to compare destination-and origin-based commodity taxes in a context of a trade and domestic tax reform. We show that an export tax reduction and a change in destination (resp. origin) tax that fix the world price is strictly Pareto-improving (resp. deteriorating), which holds whether markets are integrated or segmented. This result may provide a new rationale for preferring the destination-based consumption tax to the origin-based production tax that has been discussed in the literature of tax harmonisation and tax competition.