Commodity taxation and parallel imports

We examine the interaction between commodity taxes and parallel imports in a 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 oil destination or origin principle We show that, as the volume of parallel imports increases. non-cooperative origin taxes converge, while destination taxes diverge Moreover, origin taxes are more similar and lead to higher aggregate welfare levels than destination taxes (C) 2009 Elsevier B V All rights reserved