The Dynamics of Revenue-Neutral Trade Liberalization

Jenny Ligthart and Gerard C. van der Meijdenz ()
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Gerard C. van der Meijdenz: Department of Economics and CentER, Tilburg, University

International Center for Public Policy Working Paper Series, at AYSPS, GSU from International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University

Abstract: The paper studies the dynamic welfare and macroeconomic effects of a revenue-neutral strategy of offsetting tariff reductions with increases in destination-based consumption taxes. To this end, we employ a dynamic general equilibrium model of a small open developing economy, featuring endogenous labor supply and sector-specifc capital and land. In contrast to conventional results from tax-tariff reform studies based on fixed factor endowments, we and that instantaneous utility and the volume of trade fall on impact. Aggregate output rises in the short run, refl ecting increased labor supply and a more efficient allocation of resources across sectors. In the long run, however, aggregate output declines, whereas instantaneous utility and the volume of trade increase compared to the pre-reform equilibrium. For a plausible calibration of the model, lifetime welfare is shown to increase.

Keywords: Tariff reform; coordinated tax-tariff reform; consumption tax reform; trade liberalization (search for similar items in EconPapers)
Pages: 46 pages
Date: 2011-12-21
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Citations: View citations in EconPapers (1)

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http://icepp.gsu.edu/files/2015/03/ispwp1124.pdf (application/pdf)

Related works:
Working Paper: The Dynamics of Revenue-Neutral Trade Liberalization (2011)
Working Paper: The Dynamics of Revenue-Neutral Trade Liberalization (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ays:ispwps:paper1124

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