Customs Unions and Domestic Taxes

Martin Richardson

Chapter 7 in Dimensions of Trade Policy, 2017, pp 153-169 from World Scientific Publishing Co. Pte. Ltd.

Abstract: It is well known that non-discriminatory domestic taxes and subsidies are perfect substitutes for non-discriminatory trade policies and would render useless international agreements restricting trade policy alone. We show that these instruments generally are imperfect substitutes for trade policy in a customs union. However, in one popular specification of trading patterns, access to such tax powers nevertheless renders a customs union useless. Furthermore, numerical simulations demonstrate that a union may be ineffective in many other cases, severely curtailing the potential unions that are attractive to both members. We illustrate the restrictive conditions under which a union will then form.

Keywords: Trade Policy; Preferential Trading Agreements; Content Protection; Parallel Imports (search for similar items in EconPapers)
JEL-codes: F13 (search for similar items in EconPapers)
Date: 2017
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Journal Article: Customs Unions and Domestic Taxes (1994)
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