Registration Taxes on Cars Inducing International Price Discrimination: An Optimal Tariff Approach

Pre-tax car prices are particularly low in EU countries with high registration taxes but no car production, meaning that the tax is equivalent to an import tariff and induces international price discrimination. The paper develops a theorectical model to analyse the European Commission's policy of facilitating arbitrage and thereby reducing car price differences. The effects on prices, quantities and welfare depend crucially on whether the tax is exogenous or whether it is set optimally by the importing country. The optimal tax rate depends positively on the car manufacturers' scope to price discriminate. Thus when arbitrage costs fall, tax rates are reduced.registration tax, optimal tariff, price discrimination, car prices, European Union, tax harmonization

Fiscal policy in an asymmetric exchange rate union

SIGLEAvailable from Bibliothek des Instituts fuer Weltwirtschaft, ZBW, Duesternbrook Weg 120, D-24105 Kiel W 235 (209) / FIZ - Fachinformationszzentrum Karlsruhe / TIB - Technische InformationsbibliothekDEGerman

Home Bias, internationale Preisdifferenzierung und Wirtschaftsintegration

This paper studies the effects of a further integration of markets that are characterized by intra-industry trade. The analysis is motivated by the observation that product markets of EU countries are more segmented than is usually supposed, which becomes evident e.g. from high differences in prices for identical products. We consider a duopoly model with a home bias in demand that creates an incentive for price discrimination. The effects of reducing trade barriers depend on whether primarily trade costs born by exporting firms decrease or whether arbitrage is enhanced. A fall in arbitrage costs raises the export price, lowers the volume of trade and may result in a reduction of total quantity. Decreasing trade costs reduce prices and expand intra-industry trade; however, the exact effects depend on whether arbitrage constitutes a binding restriction for setting prices. Finally, even measures that equally reduce trade and arbitrage costs may lower the volume of trade.International price discrimination, intra-industry trade, segmented markets, economic integration