Uniform Commercial Policy, Illegal Trade, and the Real Exchange Rate: A Theoretical Analysis

Stephen O'Connell ()

The World Bank Economic Review, 1992, vol. 6, issue 3, 459-79

Abstract: Countries on fixed exchange rates sometimes use uniform tariff cum subsidy (UTCS) schemes as a way of achieving a real depreciation without disturbing the nominal exchange rate. A potential drawback of this policy in relation to an across-the-board devaluation is that a UTCS scheme provides incentives for illegal trade. Using an optimizing model with currency convertibility and illegal trade, I find that welfare is lower under a UTCS scheme than under a corresponding across-the-board devaluation and that in some cases the real exchange rate actually appreciates in response to an increase in the UTCS rate. Copyright 1992 by Oxford University Press.

Date: 1992
References: Add references at CitEc
Citations: View citations in EconPapers (1)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:wbecrv:v:6:y:1992:i:3:p:459-79

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The World Bank Economic Review is currently edited by Eric Edmonds and Nina Pavcnik

More articles in The World Bank Economic Review from World Bank Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().