Can Trade Taxes be a Major Source of Government Revenue?

Ahmad Lashkaripour

Journal of the European Economic Association, 2021, vol. 19, issue 5, 2399-2428

Abstract: The tariff-for-revenue argument has been invoked repeatedly in recent years to justify protectionism. It is motivated by the belief that a country with market power can use trade taxes to raise revenue from foreign consumers and producers. This paper develops a new sufficient statistics methodology to evaluate this claim for a wide range of countries. I show that (a) even large countries have limited market power. (b) So, before retaliation by trading partners, the average country can beneficially replace only 16% of its domestic tax revenues with trade taxes. (c) After retaliation, however, 50% of the collected trade tax revenues disappear, governments are forced to increase domestic taxes to counter their shrinking tax base, and real gross domestic product drops across-the-board by an average of 7%. On the flip side, these findings indicate (d) the gains from multilateral trade agreements are also 30% larger once we account for the fiscal cost of trade wars.

Date: 2021
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1093/jeea/jvaa058 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:jeurec:v:19:y:2021:i:5:p:2399-2428.

Access Statistics for this article

Journal of the European Economic Association is currently edited by Romain Wacziarg

More articles in Journal of the European Economic Association from European Economic Association
Bibliographic data for series maintained by Oxford University Press ().