Commodity taxation and regulatory competition

This paper studies competition in regulation and commodity taxation between
trading countries. We present a general equilibrium model in which destination based
consumption taxes finance public goods, while regulation of entry determines the number
of firms in the markets. We find (i) no strategic interaction in commodity taxes;
(ii) regulation leads to lower commodity tax rates if demand for public goods is more
sensitive to income than demand for private goods and (iii) regulation policy is a
strategically complement instrument if consumers do not over value product diversity.
In the empirical part of the paper, we test our predictions using panel data for 21
OECD countries over the period 1990-2008.