The comparison between destination and origin principles under imperfect competition

Abstract

Especially, but not only, in the European Union, closer economic integration is putting increasing pressure on the destination principle under which goods entering international trade are normally taxed. This has raised the possibility of switching to the origin principle, which dispenses with problematic border tax adjustments. This paper compares destination and origin principles under conditions of imperfect competition. Previous analyses, which have considered only the competitive case, have led to a (qualified) presumption in favour of the destination principle. A series of results are established here - for both cooperative and non-cooperative tax-setting - which challenge that presumption under imperfect competition.