Working Paper

On the Efficiency of Destination and Origin Commodity Taxation in the Presence of Consumption Generated Cross-Border Pollution

Fabio Antoniou, Panos Hatzipanayotou, Michael S. Michael, Nikos Tsakiris
CESifo, Munich, 2016

CESifo Working Paper No. 6221

We combine consumption generated cross-border pollution and public pollution abatement in a theoretical framework to examine the efficiency of the destination and origin principles of commodity taxation. The key result of our study is that with public pollution abatement, the non-cooperative equilibrium origin-based consumption taxes are set efficiently. This result holds not only in the context of symmetric countries, but under certain conditions carry over also to asymmetric countries. The non-cooperative equilibrium destination-based consumption taxes are inefficient. In the absence of public pollution abatement, the Nash equilibrium commodity taxes under either taxation principle are inefficient.

CESifo Category
Public Finance
Resources and Environment
Keywords: commodity taxation, destination principle, origin principle, cross-border pollution
JEL Classification: H210, H230, H870