Quantitative Import Restrictions and Optimal Capital Taxes under a System of Tax Credits

Michael Michael and Panos Hatzipanayotou

Review of International Economics, 1998, vol. 6, issue 4, 660-69

Abstract: This paper examines the optimal capital tax policy under quantitative import constraints, and international capital tax credits. for a small capital-importing country, the optimal capital tax equals the foreign tax under a quota, and equals or exceeds the foreign tax under a VER. For a small capital-exporting country, the optimal policy towards capital is a zero tax under a quota, and a tax or subsidy under a VER. Also examined are the welfare effects of capital taxes and trade liberalization, and the joint setting of the two policies, where both instruments are available to the government. Copyright 1998 by Blackwell Publishing Ltd.

Date: 1998
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