Asymmetric competition in the setting of diesel excise taxes in EU countries

Paizs, László (2013) Asymmetric competition in the setting of diesel excise taxes in EU countries. Acta Oeconomica, 63 (4). pp. 423-450. DOI 10.1556/AOecon.63.2013.4.2

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This paper tests new implications of the asymmetric tax competition model on diesel excise taxes. We extend the standard tax competition model by replacing the unit demand assumption with iso-elastic demand. As a result, not only the level of the equilibrium tax, but also the slope of the tax reaction function depends positively on the size of the country. The new implication is tested on panel data in first differences for 16 countries of Western Europe. The results provide strong evidence for strategic interaction in the setting of diesel excises and confirm the effect of country size on the response to tax changes in neighbouring countries. Strategic interaction between EU countries intensified in the mid-1990s and drove small European countries to set lower diesel tax rates. These results explain why the EU’s minimum tax policy has failed to harmonise diesel tax rates.

Item Type:Article
Uncontrolled Keywords:EU-28
JEL classification:Q40 - Energy: General
Divisions:Faculty of Business Administration > Institute for Environmental Science > Regional Centre for Energy Policy Research
Subjects:Energy economy
ID Code:2729
Deposited By: Péter Kotek
Deposited On:22 Mar 2017 13:34
Last Modified:22 Mar 2017 13:34

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