Optimal Tariffs When Labor Income Taxes Are Distortionary

Narayana Kocherlakota

No 33759, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: A classic result in trade theory is that it is socially optimal to set the tariff on a good equal to the inverse of the elasticity of its foreign supply. However, this result is based on the assumption that the government can use lump-sum taxes. The paper considers a simple open representative agent economy and characterizes second-best tariffs when the government's only non-tariff source of revenue is linear labor income taxation. If public spending needs are sufficiently large, and import demand is more (less) income-elastic than non-import demand, then the second-best tariff is lower (higher) than the standard optimal tariff.

JEL-codes: E60 F10 H21 (search for similar items in EconPapers)
Date: 2025-05
New Economics Papers: this item is included in nep-pub
Note: IFM PE
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w33759.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

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:nbr:nberwo:33759

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w33759
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().