Pareto-improving tariff-tax reforms under imperfect competition

Kenji Fujiwara ()

International Review of Economics & Finance, 2014, vol. 31, issue C, 12-20

Abstract: Constructing a duopoly model with non-constant marginal costs and a strict Pareto criterion, this paper examines welfare effects of world-price-fixing tariff reductions accompanied by adjustments of a domestic tax. If a destination-based consumption tax is used, this reform achieves a strict Pareto improvement under sufficiently decreasing marginal costs. If, in contrast, an origin-based production tax is employed, a strict Pareto improvement holds whether marginal cost is decreasing or not. Thus, we can conclude that tariff-tax reforms that improve the world welfare and are irrelevant of tax bases are possible if the targeted industry exhibits sufficiently decreasing marginal costs.

Keywords: Tariff-tax reform; Destination principle; Origin principle; Strict Pareto improvement/deterioration; Duopoly (search for similar items in EconPapers)
JEL-codes: F12 F13 H2 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Working Paper: Pareto-improving tariff-tax reforms under imperfect competition (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:31:y:2014:i:c:p:12-20

DOI: 10.1016/j.iref.2013.11.006

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