Revenue-neutral or profit-neutral tariff and tax reforms under imperfect competition: Welfare implications

Yang-Ming Chang and Ruben Sargsyan

International Review of Economics & Finance, 2022, vol. 80, issue C, 1-11

Abstract: Concerns over the financial losses of government in revenues resulting from tariff reductions under trade liberalization have triggered many low-income countries to opt for a proper strategy of reforming their domestic consumption taxes. This paper analyzes the welfare effects of two coordinated tariff and tax reform strategies: one is to keep government revenue unaffected, and the other is to leave domestic profit unchanged when there are tariff cuts. Within a stylized framework of international duopoly, we identify conditions under which the tariff and tax reforms (revenue-neutral and profit-neutral) make domestic consumers better off and are welfare improving to a reforming country.

Keywords: Tariff cuts; Domestic tax reforms; Revenue neutrality; Profit neutrality; Welfare effects (search for similar items in EconPapers)
JEL-codes: F12 F13 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:80:y:2022:i:c:p:1-11

DOI: 10.1016/j.iref.2022.02.029

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