In a closed economy, a commodity tax drives a wedge between the producer price and the consumer price. In open economies, intercountry differences in commodity taxation can induce two additional distortions: (1) Cross-country differences in consumer marginal rates of substitution (which result...

The author analyzes (both theoretically and empirically) the international distortions and fiscal interdependence that arise because of different tax rates among a region's countries. The author also studies what happens when the countries try to harmonize taxes, focusing on how the...