Cross-border Shopping Research Articles

Scale Economies in Cross-Border Shopping and Commodity Taxation

A simple inventory theoretic model of cross-border shopping with transaction and storage costs is developed. Consumers incur fixed transaction and transportation costs to access the foreign market in which a perfect substitute of the domestic good is available. We show that the size of the optimal tax is inversely related to the size of domestic transactions. This result provides a simple example of a more general principle, that is, when there are increasing returns to scale in tax avoidance with respect to the quantities involved, then smaller transactions should be taxed more heavily than larger transactions.

Cross-border shopping and commodity tax competition among governments

The purpose of this paper is to analyze Nash tax competition among governments that differ in geographical aspects such as their sizes and positions. Each government lying on a linear market maximizes its revenue with respect to its own commodity tax rate, taking into account the cross-border shoppings induced by the difference in tax rates. In particular, we examine how the size of the countries and their spatial arrangement affect tax rates and government revenues at a Nash equilibrium. We show that a small country chooses a lower tax rate than a big country, and obtains more than its size-proportional share of total revenue at the Nash equilibrium. We also prove that when the size of all countries are identical, the tax rates levied by the governments go down from either market boundary toward the market center, and the adjoining countries of peripheral countries can obtain the largest government revenue.

EU-Membership and the Border Trade in Alcohol in Southern Sweden

When Sweden joined the European Union on January 1, 1995, the personal import quotas for wine and strong beer were raised. This meant increased possibilities for Swedish consumers to buy alcohol at a lower price, mainly in Denmark and on the Continent. In this article the effects of the higher quotas on retail trade in the southern part of Sweden have been studied. These effects are considered to reflect the minimum increase in cross-border shopping for alcohol in the southern part of the country after the EU-membership. The decrease in retail sales, affected by the increased cross-border shopping, between 1994 and 1996 was equivalent to 2.7% of the total sales of alcohol officially registered in Sweden. Between 1995 and 1996, cross-border shopping seems to have increased to the same extent as it did between 1994 and 1995. The increase in cross-border shopping mainly affected the sale of strong beer, followed by sales of ordinary-strength beer, wine and spirits, in this order. Even citizens living 300–400 kilometres from the southernmost tip of Sweden seem to have increased their purchase of alcohol in Denmark and on the Continent. This article also gives estimates of the consumers' reaction to price changes in alcoholic beverages sold by the state-owned monopoly stores during 1986–1995, both in Sweden as a whole and in the southern regions. It appears that consumers will buy more wine and strong beer if the prices are reduced. Considering the fact that the higher import quotas at least to some extent can be viewed as a price reduction in the southern part of the country, it is very likely that cross-border consumers will buy more alcohol abroad than they will if they stay in Sweden. Against this background it is safe to assume that since Sweden joined the EU, cross-border shopping has increased by more than an amount equivalent to 2.7% of the total, officially registered alcohol sales in Sweden.

The road to the Single European Market as seen through the Danish retail trade: Cross-border shopping between Denmark and Germany

Traditionally, Denmark has a tax structure in which VAT and excise duties played a significant role. This has caused large price differences between goods in shops in Denmark and the same goods in shops in the neighbouring country of Germany. At one time the system of duty-free allowances prevented Danes from buying many times in quantity in Germany. But since 1973, when Denmark became a member of the EEC, a large number of Danes have gone cross-border shopping in Germany. The purpose of this paper is to show how Danish-German cross-border shopping has reacted to changing conditions during the first decades of the Danish membership of the EEC up to the establishment of the Single European Market in 1993 and during the years immediately following. In the paper findings are presented from a number of surveys made on this topic between 1977 and 1996. It is shown that, even with a large difference in VAT rates, the cross-border shopping done by Danes involves hardly anything but items subject to excise duty. Even since the inception of the Single European Market, the border has continued to form a barrier with respect to other purchases. The cross-border shopping done by Germans is not caused by price differences to the same extent, but is mainly the result of difference in the range of products available on the other side of the border. Moreover, the surveys have shown that the volume of cross-border shopping done by Danes is significantly larger that that done by Germans.

Asymmetric commodity tax competition — comment on de Crombrugghe and Tulkens

A widely noticed result by de Crombrugghe and Tulkens (Journal of Public Economics 41 (1990) 335–350) states that asymmetric commodity tax competition always leads to tax rates being too low in both countries, even though there are counteracting private and public consumption effects for the high-tax region. This note argues that the result depends crucially on the assumption that welfare in the high-tax region is concave in the tax rate of the low-tax country and shows that this assumption cannot generally be met in the underlying Mintz and Tulkens (Journal of Public Economics 29 (1986) 133–172) model. It is also shown that a tax increase in the low-tax country will hurt the high-tax region when the marginal transaction cost schedule is sufficiently elastic with respect to the level of cross-border shopping.

Tax evasion in an open economy:: Value-added vs. income taxation

Ignoring tax evasion possibilities, a value-added and a cash-flow income tax have similar behavioral and distributional consequences. Yet the available means of tax evasion under each can be very different. Under a VAT, avoidance occurs through cross-border shopping, whereas under an income tax it can occur through shifting taxable income abroad. Given evasion, we show that a country would make use of both taxes in order to minimize the efficiency costs of evasion activity, relying relatively more on whichever tax is harder to evade. We then make use of aggregate Danish tax and accounting data from 1992 to measure the amount of evasion that occurred under the two taxes. While the estimates of evasion activity are small, the figures imply that Denmark could reduce the real costs of evasion activity by relying more on value-added taxes.

The strange case of home shopping and the Single European Market

A critical examination of the Single European Market (SEM) project's neo-liberal foundations reveals a marginal role for the retail sector. Home shopping is the exception to the retail rule, seemingly conducive to the rapid construction of pan-European operations. A detailed analysis of European Union (EU) policy on distance selling and data protection, directly aimed at integrating home shopping into the SEM, reveals fundamental contradictions and tensions between the European Commission's rhetoric and the legislative outcomes. The SEM, as currently constituted, is unlikely to deliver adequate levels of consumer protection to facilitate large-scale cross-border shopping. Consequently, the widespread development of Euro-retailing will require far deeper levels of European integration.

A PILOT STUDY OF CROSS-BORDER SHOPPING: IMPLICATIONS FOR MEDIUM AND SMALL SIZE RETAILERS

ABSTRACT A cross-border shopping survey was mailed to 750 randomly selected Canadians, both Francophone and Anglophone, living in the Greater Montreal area. The survey sought to examine why Canadian consumers cross-border shop in the United States and to determine if the amount of money spent in the US differs according to the language spoken at home. Significant differences were found between Canadian cross-border and non- cross-border shoppers regarding spouse's age, education, and language. Those who did not shop in the US had younger spouses, fewer children under the age of 18, and more often spoke French at home. Bilingual Canadians spend more than either Anglophones and Francophones who shop in the US. Respondents indicated that cross-border shoppers learn about US shopping through Canadian newspapers, television and radio, and US television. Canadians who cross-border shop in the US indicated making an average of 4.87 annual trips to the US and spending an average of approximately $235.93 (Canadian) per trip or $1, 148 annually. These consumers spend a fair share of their disposable income in the US. Noncross-border shoppers reported the exchange rate as a reason for not shopping in the US.

An analysis of Canadian cross-border travel

Cross-border shopping by Canadians in the United States is examined for the seven Canadian provinces bordering the United States. Data on same day automobile trips and expenditures obtained from Statistics Canada, International Travel Section are analyzed using multiple regression techniques. New Brunswick, British Columbia and Ontario demonstrated the most cross-border shopping activity as measured by per capita same day automobile trips and real per capita same day automobile trip expenditures. Across the provinces, cross-border trips and expenditures were driven by per capita income, the appreciation of the Canadian dollar, the ratio of Canadian to US gasoline prices, and the onset of the Goods and Services Tax (GST). There were regional differences in the determinants of cross-border shopping. The exchange rate was most sensitive on per capita trips in Ontario, Manitoba, and Saskatchewan; while per capita income was most sensitive in New Brunswick, Manitoba, and Saskatchewan. The gasoline price variable was most sensitive in British Columbia, while the GST had its strongest impact in Alberta.

Tax coordination with different preferences for public goods: Conflict or harmony of interest?

The paper analyzes strategic commodity taxation in a model with trade in a single private good that is simultaneously imported by consumers of a high-tax country and exported by its producers. Conditions for the existence of a Nash equilibrium are given, and an asymmetry is introduced through different preferences for public goods. Two tax coordination measures are discussed—a minimum tax rate and a coordinated increase in the costs of cross-border shopping. It is shown that tax coordination generally benefits the high-tax country while the low-tax country will gain only if the intensity of tax competition is high in the initial equilibrium or if governments are pricesensitive toward the effective marginal costs of public good supply.

Political boundaries and tourism: borders as tourist attractions

Although formalities commonly associated with international boundaries are sometimes considered bothersome and often add a perceived distance to certain tourist destinations, borders do, in many cases, function as tourist attractions. This paper discusses the nature of political boundaries in the context of tourism and examines the tendency of various types of international frontiers and their associated environments to attract significant tourist numbers. Situations considered are relict boundaries, boundary parks and monuments, and natural wonders located at international borders. Subnational boundaries are also examined in a similar fashion. Since tourism is also important in areas adjacent to boundaries (borderlands), the last part of the paper focuses on some of the dimensions of cross-border shopping, bordertown gambling, welcome centers, and international enclaves — all border-related phenomena which are not in fact part of a precisely established political boundary but which owe their existence to their borderlands location.

Udviklingen i Danske Familiers Öl- Og Vinindkøb 1990–1993

The article is based on a regression analysis made on panel data concerning the changes in Danish household purchases of beer and wine between 1990 and 1993, following two major price reductions made in 1991 and 1992. The results show that the attempts to reduce cross-border shopping have been fruitful: the amounts of beer and wine bought abroad have decreased markedly, except in the southern parts of the country, near the German border, where cross-border shopping is a part of daily life. The price reductions have also resulted in increasing sales figures, although some of these changes are due to a common shift from spirits to weaker alternatives. The panel data also show an increased demand for inexpensive beer and wine bought in Denmark. Together with reduced cross-border shopping this means that some of the most price-elastic trade with beer and wine has moved home from abroad.

Smuggling and cross border shopping of tobacco in Europe

Governments have recently become concerned about cross border shopping and smuggling because it can decrease tax revenue. The tobacco industry predicted that, with the removal of border controls in the European Union, price differences between neighbouring countries would lead to a diversion of tobacco trade, legally and illegally, to countries with cheaper cigarettes. According to them this diversion would be through increased cross border shopping for personal consumption or through increased smuggling of cheap cigarettes from countries with low tax to countries with high tax, where cigarettes are more expensive. These arguments have been used to urge governments not to increase tax on tobacco products. The evidence suggests, however, that cross border shopping is not yet a problem in Europe and that smuggling is not of cheap cigarettes to expensive countries. Instead, more expensive "international" brands are smuggled into northern Europe and sold illegally on the streets of the cheaper countries of southern Europe.

Bringing It All Back Home: Alcohol Taxation and Cross‐Border Shopping

Taxes on alcohol are among the oldest in the UK and are still an important source of tax revenue. In 1992, for example, just prior to the completion of the Single European Market, revenues from excise duties on alcohol totalled over £5 billion, equivalent to 2 per cent on value added tax or 2.5 pence on income tax. Recently, the future of this source of revenue has become uncertain with the relaxation of limits on personal imports of excisable goods by domestic consumers and the increase in cross-border shopping. In this paper, we investigate the effect of increased cross-border shopping on the revenue return to alcohol taxation.

Cross-boder shopping: A North American perspective

This paper examines the place of cross-border shopping in the context of tourism between Canada and the United States and the implications that this has for the role of shopping as a generator of tourism. A review of the relationship between shopping and tourism is followed by an examination of the sudden increase in cross-border shopping in North America of the 1980s, and the public and private sector responses. This surge of Canadian cross-border shoppers resulted in a significant increase in the travel deficit for Canada and attracted political, legislative, economic, and social reaction. Models are proposed as aids to understanding the role of cross- border shopping in tourism.

Optimal Commodity Taxation With Costly Noncompliance

Because noncompliance has efficiency and equity implications, it should be a concern in the design of the commodity tax structure. This article derives the optimal commodity tax conditions and modifications to their standard interpretation when consumers engage in costly border crossing to evade local taxes. It presents a model of costly noncompliance behavior and a modified version of Roy's theorem describ ing the effect on indirect utility of a tax change when cross-border shopping occurs. This modified Roy's theorem permits the inverse elasticity rule, proportionate shrinkage rule, and covariance interpretation of the optimal tax conditions to be adapted to the case of costly noncompliance.

Cross-Border Shopping and the Optimum Commodity Tax in a Competitive and a Monopoly Market

Using a partial equilibrium model, optimality rules for a commodity tax are derived for an economy that is exposed to cross-border shopping. In a competitive market, the conventional inverse elasticity rule is shown to be valid with the qualification that it is the elasticity of domestic rather than total demand that matters. With a foreign monopoly, the inverse elasticity is modified by a tax-shifting effect. When the supplier is a multinational firm, price repercussions abroad should be taken into account. The implications for domestic taxation of the prices and taxes set abroad are also examined.

Perspectives on Tax Policy in Small and Open Economies

The ongoing internationalization of many European and non-European economies has important implications for policies related to public finance. Economies relatively open to trade in financial assets, goods, services and factors of production are likely to respond to tax policy differently than relatively closed economies. The divergent impacts are related to both distributional aspects and allocative efficiency. This volume takes stock of some new insights from research on public finance in open economies. The focus is twofold. On the one hand, the degree of economic openness establishes further constraints on optimal tax policy. New sources of tax-induced inefficiency may be created by internationalization, and the costs of maintaining old policies may increase. This perspective is further discussed in the contribution by Christiansen, Hagen and Sandmo. On the other hand, institutional features typical of the open economies in Europe need to be better incorporated into the standard theory of public finance. Examples are labor unions, housing investment, cross-border shopping, monopolies, and pension saving. These extensions often involve market imperfections, which raise secondand third-best issues. Examples of market failures examined in this special issue are environmental externalities, knowledge spillovers, imperfect competition in commodity markets, and labor-market imperfections giving rise to involuntary unemployment. Higher mobility of financial capital, induced by lower transaction costs and deregulation of capital markets, has attracted considerable attention to the taxation of capital income. The standard normative model assumes perfect mobility of physical capital, while labor and residents are completely immobile. If a government can freely tax labor and country-specific rents, it should not adopt any source-based taxes on capital income. Intuitively, with perfect capital mobility, a source-based tax on capital is shifted to the immobile factor labor. It is better to tax labor directly rather than indirectly through a source-based tax on capital, since the explicit labor tax does not distort production.

The Determinants of Expenditures by Canadian Visitors to the United States

The quarterly expenditures of Canadian visitors to the United States over the period 1979 to 1989 are analyzed using regression analysis. Both real per capita same day and one or more nights trip expenditures are positively and significantly related to real per capita income and negatively and significantly related to the real exchange rate expressed as Canadian dollars per U.S. dollars. Both same-day and one or more night expenditures demonstrate strong seasonal variation. Only one or more nights automobile trip expendi tures are positively and significantly related to the exchange rate adjusted ratio of Canadian to U.S. gasoline prices. The exchange rate is a key determinant of expenditures by Canadians visiting the United States. Same-day automobile trip expenditures, which can be taken as a proxy for cross-border shopping, exhibit a real exchange rate elasticity of -2.31%.

The Musical Coast / 1: Knowing What They Want

If music is truly the universal language, then musical theatre in Vancouver should be no different than in many other North American cities. And to a great degree this is true. Musical theatre has a way of obliterating cultural difference, as you would have seen the night you went to Phantom of the Opera. (We all went eventually, didn’t we.) In the international marketplace of the ’90s, there is plenty of cross-border shopping in musical theatre.