International Commodity Taxation in the Presence of Unemployment

CORE Discussion Paper No. 2006/69

20 Pages Posted: 14 Nov 2006

See all articles by Simone Moriconi

Simone Moriconi

Catholic University of the Sacred Heart of Milan

Yasuhiro Sato

Nagoya University; Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

Date Written: September 2006

Abstract

This paper analyses the effect of consumption taxes on unemployment in presence of wage rigidity and compares non-cooperative tax setting under the destination and origin principle of commodity taxation. We show that, in a two country economy, consumption taxes negatively affect domestic employment and cause an employment externality which is negative under the destination and positive under the origin principle. Whereas the non-cooperative tax rate is inefficiently high under both principles, we show that, when the level of rigid wages is high, the origin principle is superior to the destination principle from the viewpoint of employment as well as social welfare.

Keywords: Commodity taxation, destination principle, origin principle and unemployment

JEL Classification: F16, H87, J23

Suggested Citation

Moriconi, Simone and Sato, Yasuhiro and Sato, Yasuhiro, International Commodity Taxation in the Presence of Unemployment (September 2006). CORE Discussion Paper No. 2006/69, Available at SSRN: https://ssrn.com/abstract=944462 or http://dx.doi.org/10.2139/ssrn.944462

Simone Moriconi (Contact Author)

Catholic University of the Sacred Heart of Milan ( email )

Largo Gemelli, 1
Via Necchi 9
Milan, MI 20123
Italy

Yasuhiro Sato

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium

Nagoya University ( email )

Furo-cho, Chikusa-ku
Nagoya-City, 4648601
Japan

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