Tacit collusion and international commodity taxation

Abstract

The paper employs a model of dynamic price competition to study how international commodity taxation affects the stability of collusive agreements when producers in an international duopoly agree not to export into each other’s home market. We consider both the choice of international tax principle and the harmonization of tax rates and differentiate between a setting where production costs differ between countries, and a setting where exogenous tax rate differentials are the only asymmetry. The conclusions derived from this model differ strongly from those obtained under the assumption of competitive product markets.