Tariffs, Optimal Taxes, and Collection Costs

Dubravko Mihaljek ()

No 1992/028, IMF Working Papers from International Monetary Fund

Abstract: This paper studies an optimal tax problem for a small open economy where collecting taxes is costly. It is shown that, in the presence of collection costs modeled as an increasing function of the tax rate: (a) the standard rules of optimal commodity taxation (the Ramsey, the inverse elasticity, the Corlett-Hague rules) may no longer be valid; (b) tariffs may replace domestic taxes as a second-best revenue-raising device; and (c) the optimal tariff/tax structure may be uniform rather than differentiated.

Keywords: WP; collection cost; excess demand; tax rate; trade tax; open economy; consumer demand; public goods; tariff structure; utility function; Consumption taxes; Tariffs; Taxes on trade; Optimal taxation; Demand elasticity (search for similar items in EconPapers)
Pages: 34
Date: 1992-04-01
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Citations: View citations in EconPapers (1)

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