The Choice of International Commodity Tax Principles Revisited: The Role of Interest Groups and Foreign Ownership

ABSTRACT This study analyzes lobbying and foreign ownership on commodity tax principles. Our model demonstrates that the optimal commodity tax rate under the destination principle is always positive, and political contributions exhibit non‐monotonic behavior. The desirability of the two tax principles is not invariant. When lobbying efficiency is sufficiently low, the destination principle yields higher welfare outcomes. When lobbying efficiency is high, however, the origin principle may be preferred due to lower rent‐seeking costs. When both lobbying efficiency and foreign ownership are extremely high, the destination principle is again superior due to its substantial tax revenue.