The Costs of Restrictive Trade Policies in the Presence of Factor Tax Distortions

Ian Parry

International Tax and Public Finance, 2001, vol. 8, issue 2, 147-170

Abstract: This paper uses a numerical general equilibrium model to examine the quantitative importance of pre-existing factor tax distortions for the welfare effects of tariffs and import quotas. The presence of pre-existing taxes can greatly raise the costs of these policies, possibly by over several hundred percent. For a tariff much of this extra cost can be offset if tariff revenues are used to reduce distortionary taxes. Hence there can be a large cost discrepancy between tariffs and quotas. The optimal tariff for a country with market power in trade can be reduced to zero, unless revenues finance cuts in distortionary taxes. Copyright Kluwer Academic Publishers 2001

Keywords: pre-existing tax distortions; tariffs; import quotas; welfare costs (search for similar items in EconPapers)
Date: 2001
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Related works:
Working Paper: The Costs of Restrictive Trade Policies in the Presence of Factor Tax Distortions (1998)
Working Paper: The Costs of Restrictive Trade Policies in the Presence of Factor Tax Distortions (1998)
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DOI: 10.1023/A:1011268619072

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