Tacit collusion under destination- and origin-based commodity taxation

In: CESifo working paper series 283

Abstract

The paper employs a standard model of dynamic price competition to study how international principles of value-added taxation affect the stability of collusive agreements when producers in an international duopoly agree not to export into each other's home market and tax rates differ across countries. In this framework, tacit collusion may be more likely to break up under either the destination of the origin principle, depending on the relation between costs of production and market size. A robust result is that tax rate harmonization increases the likehood of tacit collusion under both tax principles considered.