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GTAP Resources: Resource Display

GTAP Resource #3312

"Cross border trade between Estonia and Finland"
by Kerkela, Leena

Cross border shopping (or trade) is not observed in trade statistics as it is more like consumption raising from price differences between different tax jurisdictions that locate near each other (e.g. Kanbur and Keen 1993).
Cross border shopping is part of tourism between Finland and Estonia. Cost and price differences have stimulated tourism and cross border consumption from Finland to Estonia. Ferries sailing in the Gulf of Finland offer day trips and trips with overnight staying in Estonia. Shopping in Estonia is mainly driven by differences in the price of alcohol. Increasing demand for private labor intensive small scale services has also grown during the last decade.
This study is motivated by the discussion of plans to raise the value added tax in Finland. This policy would increase price differences between Finland and Estonia and stimulate cross border shopping. In this study we ask, how much of the anticipated tax revenue increase is melted in cross border consumption to Estonia.
The study utilizes CGE-approach in estimating these effects. GTAP database is one tool even though it does not capture the essential features of the phenomenon. The approach approximates the income shift due to tax changes and simulates its effect on domestic demand. The scenario is simulated as an exogenous shift in domestic consumption. The interest in results focuses on industry effects apart from tax revenue effects. Ex ante one cannot assume that increasing demand of cross border consumption would be directed to same commodities if used at home. By utilizing a CGE-model we assume that the picture of the basket of the representative consumer tells more about the potential effect in Finland.

Resource Details (Export Citation) GTAP Keywords
Category: GTAP Application
Status: Not published
Date: 2010
Created: Kerkela, L. (4/15/2010)
Updated: Batta, G. (5/10/2010)
Visits: 1,084
- Trade in services
- Domestic policy analysis
- Europe (Northern)

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