Indirect Taxation in an Integrated Europe: Is There a Way of Avoiding Trade Distortions without Sacrificing National Tax Autonomy?

Abstract

The paper discusses the main arguments for destination- versus origin-based commodity taxation in the European Community’s Internal Market. Destination-based solutions distort commodity trade in the Community because cross-border purchases by final consumers can only be taxed in the origin country. On the other hand, an origin-based general consumption tax is neutral in a European context and it can be combined with destination-based taxation in third countries in a non-distortionary way. Furthermore, it is shown that the introduction of capital mobility does not affect the neutrality of an origin-based consumption tax. Finally, the paper addresses the administrative and political implications of a switch to the origin principle in the European Community.KeywordsOrigin PrincipleDestination PrincipleInternational Capital MobilityRelative Producer PriceThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.