On the Determinants of Optimal Border Taxes for a Small Open Economy

Knud Munk and Bo Sandemann Rasmussen ()
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Bo Sandemann Rasmussen: Department of Economics, University of Aarhus, Denmark, Postal: 8000 Aarhus C, Denmark

Economics Working Papers from Department of Economics and Business Economics, Aarhus University

Abstract: For a small open economy where the government is restricted to raise revenue using border taxes only, the optimal structure of border taxes is considered. As a matter of normalization exports and the supply to the market of the primary factor may be assumed to be untaxed, but that the household use of the primary factor and domestic consumption of the export good cannot be taxed is nevertheless a constraint; this insight provides the key to understanding what determines the optimal tariff structure. The optimal border tax structure is derived for both exogenous and endogenous labour supply, and the results are interpreted in the spirit of the Corlett-Hague results for the optimal tax structure in a closed economy and compared with results from CGE models.

Keywords: Border taxes; small open economy; labour supply; Corlett-Hague. (search for similar items in EconPapers)
JEL-codes: F13 H21 (search for similar items in EconPapers)
Pages: 11
Date: 2005-12-15
New Economics Papers: this item is included in nep-int and nep-pbe
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Citations: View citations in EconPapers (4)

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