Trade Taxes are Better?!?

Can Erbil

No 330921, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

Abstract: The main purpose of this paper is to find out more about welfare implications of trade reforms with a government budget constraint by expanding the study of Anderson (1999). A simple general equilibrium model with distortionary indirect taxes and an “active” government budget constraint is employed to analyze the welfare implications of a trade reform. Unlike the conventional trade theory, the tariff revenue cuts due to the tariff reform must be compensated with increases in indirect taxes and not simply assuming lump sum transfers. The concept of “Marginal Cost of Funds” (MCF) from the public finance literature is utilized to find out whether the prospective change is welfare improving or not. The empirical part of the paper generates MCF figures, which answer the question; “is replacing trade taxes with indirect taxes always beneficial?” The results are of special interest to developing countries, which rely on trade taxes as a significant source of their government revenue, as well as for organizations such as the WTO, World Bank or the IMF.

Keywords: International Relations/Trade; Public Economics (search for similar items in EconPapers)
Pages: 30
Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:ags:pugtwp:330921

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