On the Rationale for the Use of Border Taxes in Developing Countries

Knud Munk

Economics Working Papers from Department of Economics and Business Economics, Aarhus University

Abstract: With reference to the size of the informal sector, Stiglitz (2003) argues that border taxes are superior to VAT in certain developing countries. By way of a quantitative example this paper shows that, while Stiglitz’ claim is probably will turn out to be correct, a large informal sector is not a sufficient condition for border taxes to be preferable to a VAT regime as shown by Keen (2006). Making the case for using border taxes also requires the plausible supplementary assumptions that (i) border taxes are associated with lower administrative costs, and (ii) that this difference is sufficiently large to justify the larger distortionary costs associated with border taxes compared to domestic taxes.

Keywords: Optimal trade policy; VAT; tax-tariff reform; costs of tax administration; informal sector; developing countries (search for similar items in EconPapers)
JEL-codes: F11 F13 H21 (search for similar items in EconPapers)
Pages: 11
Date: 2006-12-30
New Economics Papers: this item is included in nep-int, nep-lam, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:aah:aarhec:2006-12

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