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Did the Single Market Cause Competition in Excise Taxes? Evidence from EU Countries

Author

Listed:
  • Lockwood, Ben

    (University of Warwick)

  • Migali, Giuseppe

    (Lancaster University)

Abstract
The introduction of the Single Market resulted in a switch from destination to origin-based taxation of cross-border transactions by individuals. The theory of commodity tax competition predicts that this change should give rise to excise tax competition and thus intensify strategic interaction in the setting of excise taxes. In this paper, we provide an empirical test of this prediction using a panel data set of 12 EU countries over the period 1987-2004. We find that for all excise duties that we consider (still and sparkling wine, beer, ethyl alcohol, and cigarettes), strategic interaction between countries significantly increased after 1993, consistently with the theoretical prediction. Indeed, for all these products except for cigarettes, there is no evidence of strategic interaction prior to 1993, so our findings are consistent with the hypothesis that the single market caused tax competition. For beer and ethyl alcohol, there is evidence that the minimum taxes, also introduced in 1993, have intensified strategic interaction.

Suggested Citation

  • Lockwood, Ben & Migali, Giuseppe, 2008. "Did the Single Market Cause Competition in Excise Taxes? Evidence from EU Countries," The Warwick Economics Research Paper Series (TWERPS) 847, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:847
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Charles McLure, 2009. "Taxing commercial motor fuel in the European Union: the case for an apportionment-based, destination-principle system," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(3), pages 395-414, June.
    2. Keuschnigg, Christian & Loretz, Simon & Winner, Hannes, 2014. "Tax Competition and Tax Coordination in the European Union: A Survey," Economics Working Paper Series 1427, University of St. Gallen, School of Economics and Political Science.
    3. Ben Lockwood & Giuseppe Migali, 2009. "Did The Single Market Cause Competition in Excise Taxes? Evidence From EU Countries," Economic Journal, Royal Economic Society, vol. 119(536), pages 406-429, March.
    4. Christian Ben Lakhdar & Nicolas Gérard Vaillant & François-Charles Wolff, 2016. "Does smoke cross the border? Cigarette tax avoidance in France," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 17(9), pages 1073-1089, December.
    5. Emilie Caldeira & Martial Foucault & Gregoire Rota-Graziosi, 2015. "Decentralization in Africa and the nature of local governments’ competition: evidence from Benin," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(6), pages 1048-1076, December.
    6. Alejandro Esteller-Moré & Leonzio Rizzo, 2010. "Politics or mobility? Evidence from us excise taxation," Working Papers 2010/3, Institut d'Economia de Barcelona (IEB).
    7. Dorian Balvir, 2024. "Fiscal rules: the imitation game," Applied Economics, Taylor & Francis Journals, vol. 56(6), pages 708-727, February.
    8. Alexandre SAUQUET, 2011. "Exploring the Nature of Strategic Interactions in the Ratification Process of the Kyoto Protocol," Working Papers 201119, CERDI.
    9. Simone Moriconi & Pierre M. Picard & Skerdilajda Zanaj, 2019. "Commodity taxation and regulatory competition," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(4), pages 919-965, August.
    10. Zhonghua Huang & Xuejun Du, 2017. "Strategic interaction in local governments’ industrial land supply: Evidence from China," Urban Studies, Urban Studies Journal Limited, vol. 54(6), pages 1328-1346, May.
    11. Sebastian Kessing & Bernhard Koldert, 2013. "Cross-border shopping and the Atkinson–Stiglitz theorem," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(4), pages 618-630, August.
    12. Marion, Justin & Muehlegger, Erich, 2018. "Tax compliance and fiscal externalities: Evidence from U.S. diesel taxation," Journal of Public Economics, Elsevier, vol. 160(C), pages 1-13.
    13. Alexandre Sauquet, 2014. "Exploring the nature of inter-country interactions in the process of ratifying international environmental agreements: the case of the Kyoto Protocol," Public Choice, Springer, vol. 159(1), pages 141-158, April.
    14. Caldeira, Emilie, 2012. "Yardstick competition in a federation: Theory and evidence from China," China Economic Review, Elsevier, vol. 23(4), pages 878-897.
    15. Dinka Antic, 2015. "Implications of the taxation of tobacco in the European Union in the period 2005-2014," Financial Theory and Practice, Institute of Public Finance, vol. 39(3), pages 279-304.
    16. Azémar, Céline & Desbordes, Rodolphe & Wooton, Ian, 2020. "Is international tax competition only about taxes? A market-based perspective," Journal of Comparative Economics, Elsevier, vol. 48(4), pages 891-912.
    17. Redoano, Michela, 2014. "Tax competition among European countries. Does the EU matter?," European Journal of Political Economy, Elsevier, vol. 34(C), pages 353-371.
    18. Peter Morrow & Michael Smart & Artur Swistak, 2019. "VAT Compliance, Trade, and Institutions," CESifo Working Paper Series 7780, CESifo.
    19. Leonzio Rizzo & Alejandro Esteller - Moré, 2011. "US Excise Tax Horizontal Interdependence: Yardstick vs. Tax Competition," Working Papers 201116, University of Ferrara, Department of Economics.
    20. Esteller-Moré, Alejandro & Rizzo, Leonzio, 2011. "(Uncontrolled) Aggregate Shocks or Vertical Tax Interdependence? Evidence From Gasoline and Cigarettes," National Tax Journal, National Tax Association;National Tax Journal, vol. 64(2), pages 353-379, June.
    21. Laszlo Paizs, 2010. "Asymmetric Competition in the Setting of Diesel Excise Taxes in EU Countries," CERS-IE WORKING PAPERS 1012, Institute of Economics, Centre for Economic and Regional Studies.
    22. Maier, Tomas, 2012. "Modelling Brewing Industry Pricing," AGRIS on-line Papers in Economics and Informatics, Czech University of Life Sciences Prague, Faculty of Economics and Management, vol. 4(4 Special), pages 1-9, December.
    23. Michele Santoni, 2017. "Protective Excise Taxation," Journal of Industry, Competition and Trade, Springer, vol. 17(4), pages 421-445, December.
    24. Paizs, László, 2009. "Gázolaj-jövedékiadó verseny az Európai Unióban [Fiscal competition on the market for diesel fuel in the European Union]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(3), pages 216-238.
    25. Nelson Jon P. & Moran John R., 2020. "Effects of Alcohol Taxation on Prices: A Systematic Review and Meta-Analysis of Pass-Through Rates," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 20(1), pages 1-21, January.

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    More about this item

    Keywords

    tax competition ; excise taxes ; cross-border shopping;
    All these keywords.

    JEL classification:

    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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