Optimal indirect tax design in an open economy

Yoshitomo Ogawa and Nobuhiro Hosoe

International Tax and Public Finance, 2020, vol. 27, issue 5, No 2, 1107 pages

Abstract: Abstract Given that tariffs continue to serve as a primary source of government revenue in many countries, we analyze the optimal indirect tax problem, consisting of commodity taxes and tariffs, under a revenue constraint. This study shows that the optimal commodity tax structure follows the Ramsey rule regardless of whether a country is small or large, which implies that the same optimal commodity tax rules are applied across a range of situations. We also show that the optimal tariffs are not zero, but negative, even in the small country case, which implies stronger support for the World Bank’s recommendation of tariff reductions for a country facing a revenue constraint. In addition, this study analyzes the optimal commodity taxation when tariffs cannot be fully adjusted. Numerical examples demonstrate some of our major findings and the magnitude of the welfare gains by these optimizations for a few countries.

Keywords: Commodity tax; Tariff; Revenue constraint; Terms-of-trade effect (search for similar items in EconPapers)
JEL-codes: F11 F13 H21 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://link.springer.com/10.1007/s10797-020-09592-8 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:itaxpf:v:27:y:2020:i:5:d:10.1007_s10797-020-09592-8

Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/10797/PS2

DOI: 10.1007/s10797-020-09592-8

Access Statistics for this article

International Tax and Public Finance is currently edited by Ronald B. Davies and Kimberly Scharf

More articles in International Tax and Public Finance from Springer, International Institute of Public Finance Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().