Paternalism and Tax Competition

25 Pages Posted: 27 Apr 2009

See all articles by Kaisa Kotakorpi

Kaisa Kotakorpi

University of Turku - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: 2008-10

Abstract

When consumers make mistakes, the government may wish to use paternalistic taxation as a corrective measure. We analyse the extent to which tax competition undermines the feasibility of paternalistic taxation. We show that the paternalistic component of a tax on a harmful good is reduced when there is cross-border shopping, but it does not disappear altogether. In a model with tax competition between two countries, only one of which has a paternalistic objective, we show that a minimum tax rate requirement can be Pareto improving despite the divergence in policy objectives. Tax harmonization, however, reduces welfare in the non-paternalistic country.

Suggested Citation

Kotakorpi, Kaisa, Paternalism and Tax Competition (2008-10). Scandinavian Journal of Economics, Vol. 111, Issue 1, pp. 125-149, March 2009, Available at SSRN: https://ssrn.com/abstract=1381809 or http://dx.doi.org/10.1111/j.1467-9442.2008.01557.x

Kaisa Kotakorpi (Contact Author)

University of Turku - Department of Economics ( email )

Turku
Finland

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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