DOES INDIRECT TAX HARMONIZATION DELIVER PARETO IMPROVEMENTS IN THE PRESENCE OF GLOBAL PUBLIC GOODS? by

Abstract: This paper identi\u85es conditions under which, starting from any tax distorting equilibrium, destination- and origin-based indirect tax-harmonizing reforms are poten-tially Pareto improving in the presence of global public goods. The \u85rst condition (un-requited transfers between governments) requires that transfers are designed in such a way that the marginal valuations of the global public goods are equalized, whereas the second (conditional revenue changes) requires that the change in global tax revenues, as a consequence of tax harmonization, is consistent with the direction of ine ¢ ciency in global public good provision relative to the (modi\u85ed) Samuelson rule. Under these conditions, tax harmonization results in redistributing the gains from a reduction in global deadweight loss and any changes in global tax revenues according to the Pareto principle. And this is the case independently of the tax principle in place (destination or origin)