Coordinated Tax-Tariff Reforms, Informality, and Welfare Distribution

Jenny Ligthart and Gerard van der Meijden ()

No 3107, CESifo Working Paper Series from CESifo

Abstract: The paper studies the revenue, efficiency, and distributional implications of a simple strategy of offsetting tariff reductions with increases in destination-based consumption taxes so as to leave consumer prices unchanged. We employ a dynamic micro-founded macroeconomic model of a small open developing economy, which features an informal sector that cannot be taxed, a formal agricultural sector, and an import-substitution sector. The reform strategy increases government revenue, imports, exports, and the informal sector. In contrast to Emran and Stiglitz (2005), who ignore the dynamic effects of taxes and tariffs on factor markets, we find an efficiency gain, which is unevenly distributed. Existing generations benefit more than future generations, who - depending on pre-existing tax and tariff rates and the informal sector size - even may become worse off.

Keywords: tariff reform; consumption tax reform; informal sector; home production; transitional dynamics; overlapping generations; second-best outcome (search for similar items in EconPapers)
JEL-codes: E26 F11 F13 H20 H26 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Coordinated Tax-Tari Reforms, Informality, and Welfare Distribution (2010)
Working Paper: Coordinated Tax-Tariff Reforms, Informality, and Welfare Distribution (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_3107

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