International Commodity-Tax Competition and Asymmetric Producer Prices

Abstract In this paper, I extend the seminal commodity-tax competition model of Kanbur and Keen (1993. “Jeux Sans Frontières: Tax Competition and Tax Coordination When Countries Differ in Size.” The American Economic Review 83: 877–92) letting asymmetric producer prices between countries of different sizes. Unlike Kanbur and Keen, I show that there are multiple equilibria, and at some equilibria, small-country consumers cross-shop from the large. Besides, tax harmonization can benefit the small country, and a minimum tax rate can decrease a country’s tax revenue.